A machine cost $300,000 to purchase. Fuel, oil, grease, and minor maintenance are estimated to cost $53.50 per operating hour. A set of tires cost $16,000 to replace, and their estimated life is 3,100 use hours. A $17,000 major repair will probably be required after 6,200 hours of use. The machine is expected to last for 9,300 hours, after which it will be sold at a price (salvage value) equal to 13% of the original purchase price. A final set of new tires will not be purchased before the sale. How much should the owner of the machine charge per hour of use, if it is expected the machine will operate 3,100 hours per year? The company's cost-of-capital rate is 10%.

A machine cost $300,000 to purchase. Fuel, oil, grease, and minor maintenance are estimated to cost $53.50 per operating hour. A set of tires cost $16,000 to replace, and their estimated life is 3,100 use hours. A $17,000 major repair will probably be required after 6,200 hours of use. The machine is expected to last for 9,300 hours, after which it will be sold at a price (salvage value) equal to 13% of the original purchase price. A final set of new tires will not be purchased before the sale. How much should the owner of the machine charge per hour of use, if it is expected the machine will operate 3,100 hours per year? The company's cost-of-capital rate is 10%.

Fundamentals Of Construction Estimating

4th Edition

ISBN:9781337399395

Author:Pratt, David J.

Publisher:Pratt, David J.

Chapter9: Pricing Construction Equipment

Section: Chapter Questions

Problem 6RQ

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A machine cost $450,000 to purchase. Fuel, oil, grease, and minor maintenance areestimated to cost $55.00 per operating hour. A set of tires cost $18,000 to replace, and theirestimated life is 3,100 use hours. A $27,000 major repair will probably be required after6,200 hr of use. The machine is expected to last for 9,300 hr, after which it will be sold at aprice (salvage value) equal to 20% of the original purchase price. A final set of new tireswill not be purchased before the sale. How much should the owner of the machine chargeper hour of use, if it is expected that the machine will operate 3,100 hr per year? Thecompany’s cost of capital (interest) rate is 8.3%.
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