Should you buy the machine or continue to rent

Reference no: EM133430389

Question: Your landscaping business needs a self propelled stumpgrinder every other week for a day. The grinder rents for $200 a day and costs $1/per mile. Most trips are between 80 and 100 miles roundtrip. Unfortunately you are unable to operate it due to the rental rules so a operator is provided and you end up tipping him $40 a day. Now you can buy your own self propelled stumpgrinder for $35,000. You will be able to operate it yourself. The annual insurance is $1,200 and the operating cost is $0.45 cents a mile. You will be able to sell the machine for $15,000 (in real terms) at the end of the eigh year of operation. The nominal discount rate is 9% and inflation is forecasted to be 3%. There is no depreciation or taxes in the analysis. Should you buy the machine or continue to rent?

Reference no: EM133430389

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