Reference no: EM13319103

Your contracting company has just been awarded a large earthmoving contract that would be well suited for a Caterpillar 950H loader to load trucks with. A local rental yard said that they will supply you the loader for $50.00 per hour plus $4.15 sales tax not including any operating costs. You need to analyze what it would cost your company to purchase the loader instead of renting it. The purchase price including sales tax and attachments is $260,000. The project will last 5 years and you are not sure that you will have work for the loader after this project therefore you need to plan on selling it at the end of 5 years for 60% of the original purchase price. According to the schedules that the project managers have put together it appears that you will be able to get 1,500 hours of utilization per year on the loader during all five years and they also anticipate 45 minute efficiency working hours. According to the Chief Financial Officer of the company your cost of money is 8% and the insurance on the loader will be .4% of the value. Your tire sales person says that a set of 4 tires will cost $9,000.00, last 2,500 hours and the average repairs will be about 14% of the purchase price over the life of the tires. The preventative maintenance schedule that your fleet is on has PM1 oil changes completed every 225 hours with oil, lube and filter cost at $8.00 per gallon, the repair and maintenance cost is $3.00 per hour and your throttle load factor for the loader is 65%. The loader will be scraping the ground about 30% of the time with high wear ground engaging cutting edges that cost $400.00 per set and will last 200 hours performing this application before they wear out. Diesel fuel is $3.00 per gallon.

a. What is the ownership cost per hour?

b. What is the operating cost per hour?

c. What does it cost to use the rental machine per hour?

d. Over 5 years at 1,500 hours per year what is the total cost difference?

e. What is one unique fact that you learned about the 950 loader?