A machine costs $555,000 to purchase. Fuel, Oil, Grease, and minor maintenance are estimated to cost $62.50 per operating hour. A set of tires cost $12,500 to replace, and their estimated life is 4,000 use hours. A $20,000 major repair will probably be required after 6,800 hours of use. The machine is expected to last for 12,000 hours after which it will be sold at a price (salvage value) equal to $55,300. A final set of new tires will not be purchased before the sale. How much should the owner charge per hour of use, if it is expected that the machine will operate 4,000 hours per year? The company's cost of capital rate is 8.5 %.

A machine costs $555,000 to purchase. Fuel, Oil, Grease, and minor maintenance are estimated to cost $62.50 per operating hour. A set of tires cost $12,500 to replace, and their estimated life is 4,000 use hours. A $20,000 major repair will probably be required after 6,800 hours of use. The machine is expected to last for 12,000 hours after which it will be sold at a price (salvage value) equal to $55,300. A final set of new tires will not be purchased before the sale. How much should the owner charge per hour of use, if it is expected that the machine will operate 4,000 hours per year? The company's cost of capital rate is 8.5 %.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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