A land development company is considering the purchase of earth-moving equipment. This equipment will have an estimated first cost of $190,000, a salvage value of $70,000, a life of 10 years, a maintenance cost of $40,000 per year, and an operating cost of $260 per day. Alternatively, the company can rent the neces­sary equipment for $1100 per day and hire a driver at $180 per day. (a) If the company’s MARR is 10% per year, how many days per year must the company need the equipment in order to justify its purchase? (b) When approached to rent for the breakeven number of days, the equipment owner indicated that the minimum rental is for 100 days per year; however, he might consider a lower daily rental cost. What is the daily rental cost to justify renting over pur­chasing? If the

equipment was purchased, as­sume it would be used for the breakeven number of days. Use the Goal Seek or Solver tool to de­termine the required rental cost per day.

What will be an ideal response?


(a) Let x = days per year to just breakeven



-190,000(A/P,10%,10) -40,000 + 70,000(A/F,10%,10) -260x = -1100x - 180x

-190,000(0.16275) -40,000 + 70,000(0.06275) -260x = 1280x

1020x = 66,530

x = 65.22 days/year

The need must be 66 or more days per year to justify purchase

(b) Using Goal Seek is easier. Set up the annual cost using PMT with the breakeven days of 65.22 for the purchase option and 100 for the rent option. Changing cell is E12 and the display is:

Required rental cost is lower than $655 per day to justify rental

Trades & Technology

You might also like to view...

When a mole of gold freezes at its freezing point, is there a change in its internal energy? Explain.

What will be an ideal response?

Trades & Technology

Read the setting on this metric vernier micrometer scale graduated in 0.002 mm.

Fill in the blank(s) with the appropriate word(s).

Trades & Technology

PROBLEM 3.132 Shafts A and B are made of the same material and have the same cross-sectional area, but A has a circular cross section and B has a square cross section. Determine the ratio of the maximum shearing stresses occurring in A and B, respectively, when the two shafts are subjected to the same torque (TA = TB). Assume both deformations to be elastic.

Trades & Technology

The catalytic converter stores and then burns oxygen

Indicate whether the statement is true or false

Trades & Technology