How much will average annual ownership cost be on machine

Reference no: EM132478510

Point 1: With the neighbors getting closer and less farm oriented and your interest in expanding your dairy operation in the near future, you have to do a better job of manure handling.

Point 2: You are looking at Tractor X. This way you can get the manure in the ground with less loss and less irritation to the neighbors. That rig lists for $565,000. The dealer will allow $56,600 for your old tractor that would sell at auction for $42,000. You plan to keep the machine seven years, at which point it will be worth $70,000. You can borrow the money for 5.0% annual interest, and expect 2.6% inflation. Tractor X will take up 775 square feet of storage space. Assume 4,530 hours of use. Use 1% of list price for a tax estimate.

Question 1: How much will the average annual ownership cost be on this machine?

Hint: Start with Depreciation and Interest; use capital recovery method

DI= Value Lost* Amortization Factor + Ending Value * Real Interest Rate

Or Capital Recovery = Amortization x { BV - SV) + [r x SV]

Factor Where BV=Beginning or Starting Value, SV=Salvage Value or Ending Value

Reference no: EM132478510

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