Chapter 17, Problem 21P

Your company needs to purchase a track hoe and has narrowed the selection to two pieces of equipment. The first track hoe costs $100,000 and has an hourly operation cost of $31.00 and a useful life of four years. At the end of four years, its salvage value is $20,000. The second track hoe costs $65,000 and has an hourly operation cost of $36.00 and a useful life of three years. At the end of three years its salvage value is $10,000. The operator cost is $39.00 per hour. The revenue from either track hoe is $105.00 per hour. Using 1 ,200 billable hours per year and a MARR of 20%, calculate the NPV for both track hoes. Assume that each option is repurchased until their useful lives end in the same year. Which track hoe should your company choose?