Tech Engineering is considering whether to lease or buy earth-moving equipment.
MARR =8%
The costs of buying an earth mover are as follows.
Purchase Price = $150,000
Life = 10 years
Salvage value = $12,000
Maintenance = $1,800/year
Insurance = $1,200 /year
Operating cost day = $300/day
If the equipment is leased, in addition to incurring an operating cost of $300 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.

Question

Quizplus · Accepted Answer

Assume the "X" be the minimum # of days the equipment has to be operated per year.
Cost of owning equipment/year = 150,000(A/P, 8%,10) -12,000(A/F,8%,10) +1,800+1,200+300X
= 150,000(0.1490) ? 12,000(0.0690) +1,800 +1,200 +300X
= 24,522 + 300 X
24,522 + 300 X = 400 X
X = 24,522 / (400-300) = 245.22 days.

Tech Engineering Is Considering Whether to Lease or Buy Earth-Moving