Reference no: EM132927531

Question - A contractor has purchased a new small backhoe for $120,000 (Note: the backhoe came with a new set of tires included in the price) that he plans to use in excavating ditches for utilities construction. He plans to use the backhoe for 6 years and sell the used machine for $40,000 with a new set of tires. He must replace the tires on the backhoe after each 3,000 hours of use at a cost of $15,000. Annual operating and labor costs are estimated to be $20,000 per year. The contractor estimates that the backhoe will be used about 1,000 hours per year. Show your calculations in the next page for partial credit on the questions below.

(a) If the minimum attractive rate of return is 12%; what is the annual ownership cost for the backhoe (less tires)?

(b) If the minimum attractive rate of return is 12%; what is the annual ownership cost for the backhoe plus the annual operating cost for the tires?

(c) If the minimum attractive rate of return is 12%; what is the hourly ownership and operating cost for the backhoe?