Question

You just borrowed $1,200,000 from the bank at 1% per month to purchase a new Cater- pillar 8750 dragline excavator (see Figure 2). You expect to keep the dragline for 120 months. Based on past experience in your company, you estimate following operating and mainte- nance costs. • Operator's salary, maintenance, lube, and filters: $20,000 / month • Expected gradient in these O&M costs: $250 / month / month • Replace cables and reline bucket once a year: $50,000 / year • Overhaul engine and tracks every 30 months: $150,000 / each overhaul At the end of the 120 month period the dragline should sell for about $300,000 in "as is" condition, without a final overhaul and without replacing the used cables, etc. You estimate that the dragline will move 100,000 [m] the first month. Due to continued wear, age, and down time, the amount moved will decrease by 1,000 (m) per month each month thereafter until a 30-month overhaul. Immediately following an overhaul the produc- tion will be back up to 100,000 [m3] the first month and decreasing each month thereafter. This cycle is repeated with each 30-month overhaul. (a) How much should the contractor charge in dollars per [m] to recover all of his dragline costs plus $1.00 per (m") for overhead and profit? Ignore taxes and inflation. (b) Plot the required per meter cubed cost (as defined in part (a)) versus the interest rate charge by the bank for 0.5% <i< 2% per month.

Answer 1

1. As the question do not specify the type of interest, it is assumed to Simple interest.

2. Over haul will be done 3 times during lifetime of dragline ie. at 30th month, 60th month and 90th month. Overhaul need not be done at 120th month as the dragline will be sold.

Calculation of total expense during 120 months Monthly Annual expense Expense @ every Expense for 120 Particulars Expense |(12 months) 30th month months Interest on purchase of dragline @1% $ 12,000.00 $ 14,40,000.00 Operators Salary, Maint, lube and filters $ 20,000.00 $ 24,00,000.00 Gradient in O&M cost $ 250.00 $ 30,000.00 Cables and reline bucket replace $ 50,000.00 $ 5,00,000.00 Overhaul Engine 1,50,000.00 $ 4,50,000.00 Less: Terminal value of dragline $ -3,00,000.00 Total expense for 120 months $ 45,20,000.00

Month Movement [m3] Month Movement [m3] Calculation of Total [m3] for 120 months 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 1,00,000.00 99,000.00 98,000.00 97,000.00 96,000.00 95,000.00 94,000.00 93,000.00 92,000.00 91,000.00 90,000.00 16th 17th 18th 19th 20th 21st 22nd 23rd 24th 26th 85,000.00 84,000.00 83,000.00 82,000.00 81,000.00 80,000.00 79,000.00 78,000.00 | 77,000.00 | 76,000.00 75,000.00 Total 13,95,000.00 25th 27th 12th 13th 14th 15th 89,000.00 88,000.00 87,000.00 86,000.00 28th 29th 30th 74,000.00 73,000.00 72,000.00 | 71,000.00 Total [m3] for 30 months Total [m3] for 120 months 11,70,000.00 25,65,000.00 1,02,60,000.00

A Calculation of amount contractor should charge Total [m3] for 120 months 1,02,60,000.00 Total expense for 120 months $ 45,20,000.00 Expense per [m3]........... {B/A} 0.44 Overhead and profit per [m3] 1.00 Amount contractor should charge per [m3] | $ 1.44 Ε