A contractor has purchased a wheeled loader for $200,000 and plans to use it 2,000 hours per year. He plans to sell it after 5 years with a salvage value of $75,000. The brake horsepower rating of the loaders diesel engine is 150 horsepower. The loader operator is paid $30.00 per hour. Diesel fuel costs $2.50 per gallon. Interest is 10%. The repair factor is .5, the fuel factor is .036, and the service factor is .33.

What is the contractors hourly repair cost for the loader?

Formula: Hourly Repair Cost = (Repair Factor) (Useful Life in Hours) (Hourly Depreciation Rate) / 10,000 hours

Where Hourly Depreciation Rate = (Purchase Price Salvage Price) / Hours of Expected Life

Hint: Do not adjust depreciation based on time value of money