Alfred Home Construction is considering the purchase of five dumpsters and the transport truck to store and transfer construction debris from building sites. The entire rig is estimated to have an initial cost of $125,000, a life of 8 years, a $5000 salvage value, an operating cost of $40 per day, and an annual maintenance cost of $2000. Alternatively, Alfred can obtain the same services from the city as needed at each con­struction site for an initial delivery cost of $125 per dumpster per site and a daily charge of $20 per day per dumpster. An estimated 45 construc­tion sites will need debris storage throughout the average year. If the minimum attractive rate of return is 12% per year, how many days per year must the equipment be required to justify its purchase?

Question

What will be an ideal response?

Answer 1

Let x = days per year

-125,000(A/P,12%,8) + 5000(A/F,12%,8) - 2000 - 40x = -45(125 + 20x)
-125,000(0.2013) + 5000(0.0813) - 2000 - 40x = -45(125 + 20x)
-21,131 = -860x
x = 24.6

At least 25 days per year are needed to justify the purchase.