Question: A contractor is considering the purchase of an earthmover to
A contractor is considering the purchase of an earthmover to avoid the cost of a rental unit. The earthmover costs $350,000 initially and will cost $7000 per year to store and maintain. When used, the operating cost is $300 per day to the contractor. A rental unit costs $500 per day to rent and operate. The contractor estimates that he would keep the earthmover 20 years and could then sell it at salvage for $20,000. He requires a 12% rate of return on any investment. Determine how many days per year he would have to operate the earthmover to make it a worthwhile purchase. Sketch the breakeven chart for this situation.
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