Z-tech Construction Company can rent a drilling machine for an all-inclusive of $125 per hour and on
Question:
Z-tech Construction Company can rent a drilling machine for an all-inclusive of $125 per hour and on average makes use of such a machine for 1600 hours per year. The company is considering purchasing a machine as an alternative to rent and obtains the information given below:
Cost of machine = $320,000
Salvage value after 5 years = $120,000
Annual insurance premium = $3,000
Annual tax = $1,800
Fuel cost per hour = $50
Oil and grease cost = 10% of fuel cost
Annual maintenance cost = $15,000
Discount Rate = 18%
If the planning horizon is 5 years, determine whether the company should purchase a new machine or continue to rent? Use the Present Value Method.
Provide following answers:
1) Present value of renting the equipment
2) Present value of purchasing the equipment
3) Your final decision
Data Analysis and Decision Making
ISBN: 978-0538476126
4th edition
Authors: Christian Albright, Wayne Winston, Christopher Zappe