Question

ABC Corporation purchases a piece of equipment at a cost of $50,000. Its service life is 5 years (assuming its salvage value is zero at the end of the service life) and the annual operation & maintenance cost is estimated to be $1,0000 (assuming this cost occurs at the end of each year). The manager of the company is thinking of hiring it out so that he has to estimate the minimum (i.e., at breakeven condition) hire rate on a daily basis. Assuming the average number of days that the equipment can be for hire is 300 days a year, estimate the minimum hire charge per day (i = 10%).

Answer 1

Annual operation and maintenance	$      10,000
AW of first cost = 50000*0.10*1.1^5/(1.10^5-1) =	$      13,190
Total annual worth cost	$      23,190
Number of days	300
Minimum hire charge per day	$        77.30