Reference no: EM132845356
Instruction: This assignment is about performing a cost comparison between renting and purchasing a common piece of construction equipment, a motor grader. To receive credit for this assignment, address the following as a PDF attachment this Canvas Assignment.
Your company anticipates a several long-term projects over the next 5 years, and you have been asked to investigate whether or not they should rent a motor grader or purchase a new one. You investigate 2 scenarios: Renting vs. Purchasing/Re-sell. What do you recommend? Show your work, outline your thought process, and provide clear recommendations/rationale.
Scenario 1: Renting
- Delivery/Mobilization Costs (over 5 years): $9,200
- Rental: $6,000/mo. and $2.000/wk for partial months
- Operating Costs
Fuel: 2 gallons per hour x $2.80/ gal Scenario 2: Buy & Sell
- New purchase price (pay cash, no financing) = $255,000
- Depreciation $25,000/year
- Maintenance Costs (over 5 years):
- Preventative: $26,000
- Repair: $17,000
- Tires: $16,000
Cutting Edge: $5,000
- Operating Costs
Fuel: 2 gallons per hour x $2.80/ gal
- Ownership Costs
Insurance (for 5 years): $24.000
General Information
- Construction Duration : 5 years (i.e. re-sell after 5 years)
- Machine Productivity: Motor grader operates 295 calendar days/year; productivity based on a standard 8-hr work day
- Exclude the cost for operator wages/benefits in both scenarios
• The analysis does not consider tax incentives for ownership - Your recommendations will be based on pre-tax incentive calculations.
• This analysis does not consider insurance costs at a company or project level (e.g. general liability)