Question

must be done in paper .. Please if you're not familiar, don't take this job

Kal Tech Engineering, a small highway contracting company in Cookeville, is interested in determining whether to lease or buy an earth mover. MARR =9% The costs of buying an earth mover are as follows. Purchase Price = $100,000 Life = 10 years Salvage value = $12,000 Maintenance = $1,000/year Insurance = $1,200 /year Operator cost day = $200/day If the equipment is leased, in addition to incurring operator cost of $200 per day, the company has to pay a rental fee of $100 per day. Determine the minimum number of days per year that the company has to use the earth mover in order justify buying the equipment.

Answer 1

Let the number of days be D. Then for equivalence,

AW of purchase = AW of lease

100,000 x A/P(9%, 10) + (1,000 + 1,200) + 200 x D - 12,000 x P/F(9%, 10) x A/P(9%, 10) = (200 + 100) x D

100,000 x 0.1558 + 2,200 + 200 x D - 12,000 x 0.4224 x 0.1558 = 300 x D

15,580 + 2,200 - 789.72 = 100 x D

16,990.28 = 100 x D

D = 169.9 ~ 170 days