Q A contractor purchase an equipment with a delivered price of (750000$) to operate it in one of his projects. He estimate the cost of this equipment according to the following justification - Total interest rate (including bank interest, storage, insurance, .) =15 % - Consumption of (oil, fuel, and grease) =(8.25 S/hr) - Cost of maintenance and repair = 60% of the annual straight line depreciation - salvage value = 150000 $ - Useful life = (10 years) with (1400 hours used per year). a- Determine the probable cost per hour according to the previous justification. b- After (7 years) of operating the equipment, the contractor recorded
Q A contractor purchase an equipment with a delivered price of (750000$) to operate it in one of his projects. He estimate the cost of this equipment according to the following justification - Total interest rate (including bank interest, storage, insurance, .) =15 % - Consumption of (oil, fuel, and grease) =(8.25 S/hr) - Cost of maintenance and repair = 60% of the annual straight line depreciation - salvage value = 150000 $ - Useful life = (10 years) with (1400 hours used per year). a- Determine the probable cost per hour according to the previous justification. b- After (7 years) of operating the equipment, the contractor recorded
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![Q/ A contractor purchase an equipment with a delivered price of
(750000$) to operate it in one of his projects. He estimate the cost of this
equipment according to the following justification
- Total interest rate (including bank interest, storage, insurance, .)
=15 %
Consumption of (oil, fuel, and grease) =(8.25 S/hr)
- Cost of maintenance and repair = 60% of the annual straight line
depreciation
- salvage value = 150000 S
Useful life = (10 years) with (1400 hours used per year).
a- Determine the probable cost per hour according to the previous
justification.
b- After (7 years) of operating the equipment, the contractor recorded
all the costs of the equipment as shown in the table blow. He notice
the increment in the average consumption and maintenance in the
last two years (the 6", and 7th years).
Calculate the average cost per hour of the equipment for the first
five years, according to the salvage value of the equipment at the
end of the 5th year = (200000$).
Fuel
oil
Grease
Maintenance
Year
consumption
consumption consumption
and repair S/hr
liter / hr
liter / ha
kg / hr
20
4
0.2
0.05
22
4.25
0.22
0.07
3
25
4.75
0.35
0.1
28
5.1
0.4
0.12
5
32
5.2
0.41
0.18
41
8
1.5
0.3
48
8.5
2.25
0.35
Unit price
0.5 S/liter
10S/liter
4S/kg
c- After the Deterioration of the equipment at the 6", and 7h years it
had been estimate the salvage value of the equipment at the end of
the 7th year = (92000 $).
).
Calculate the average cost per hour of the equipment during the
seven years.
d- It was clear by checking the equipment at the end of the 7t year,
the equipment needs a major repair which will cost (90000$), but it
will return the performance of the equipment like the average
performance at the first five years In terms of consumption of fuel,
oil, and grease for the next four years (8", 9h, 10", 11 year), and
the salvage value of the equipment at the end of these four years =
(50000S).
Do you agree to do this major repair, or you prefer sell the
equipment now (at the end of the 7" year). Support your answer
with calculation. Suppose all the prices and interest are constant.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F69f28f4e-c6b9-4097-bcb7-28c76ec420e5%2Ff05aa884-3553-467d-8cda-d3e3dcfe6c57%2F1zwzlv_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Q/ A contractor purchase an equipment with a delivered price of
(750000$) to operate it in one of his projects. He estimate the cost of this
equipment according to the following justification
- Total interest rate (including bank interest, storage, insurance, .)
=15 %
Consumption of (oil, fuel, and grease) =(8.25 S/hr)
- Cost of maintenance and repair = 60% of the annual straight line
depreciation
- salvage value = 150000 S
Useful life = (10 years) with (1400 hours used per year).
a- Determine the probable cost per hour according to the previous
justification.
b- After (7 years) of operating the equipment, the contractor recorded
all the costs of the equipment as shown in the table blow. He notice
the increment in the average consumption and maintenance in the
last two years (the 6", and 7th years).
Calculate the average cost per hour of the equipment for the first
five years, according to the salvage value of the equipment at the
end of the 5th year = (200000$).
Fuel
oil
Grease
Maintenance
Year
consumption
consumption consumption
and repair S/hr
liter / hr
liter / ha
kg / hr
20
4
0.2
0.05
22
4.25
0.22
0.07
3
25
4.75
0.35
0.1
28
5.1
0.4
0.12
5
32
5.2
0.41
0.18
41
8
1.5
0.3
48
8.5
2.25
0.35
Unit price
0.5 S/liter
10S/liter
4S/kg
c- After the Deterioration of the equipment at the 6", and 7h years it
had been estimate the salvage value of the equipment at the end of
the 7th year = (92000 $).
).
Calculate the average cost per hour of the equipment during the
seven years.
d- It was clear by checking the equipment at the end of the 7t year,
the equipment needs a major repair which will cost (90000$), but it
will return the performance of the equipment like the average
performance at the first five years In terms of consumption of fuel,
oil, and grease for the next four years (8", 9h, 10", 11 year), and
the salvage value of the equipment at the end of these four years =
(50000S).
Do you agree to do this major repair, or you prefer sell the
equipment now (at the end of the 7" year). Support your answer
with calculation. Suppose all the prices and interest are constant.
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