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

Answer rating: 100% (QA)

Analyzing renting vs purchasing using Present Value Method 1 Present Value of Renting the Equipment PV of Renting Annual renting cost 125hour 1600 hou... View the full answer