What is the net present value of the major engine repair

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Reference no: EM131625166

A track dozer cost $165,000.00 to purchase. Fuel, oil, grease, and minor maintenance are estimated to cost $35.00/operating hour. A major engine repair costing $26,000.00 will probably be required after 7,200 hours of use. The expected resale price (salvage value) is 20% of the original purchase price. The machine is expected to have a useful life of 10,800 hours. It is expected that the machine will operate 1,800 hours per year? The company’s cost of capital rate is 5%.

a) What is the net present value of the salvage value? (Please show the formula.)

b) What is the net present value of the major engine repair? (Please show the formula.)

c) Find the “end of period” valve, “A” for the combination of all “ownership” values. (Please show the formula. What we are finding, in essence, is the annual cost of owning the machine when a 5% interest rate cost is considered.)

d) Now that we know the annualized ownership cost, we can convert our first year of this cost into an hourly ownership cost. THEN we apply the hourly operating cost to find the total cost. What is the total cost for this machine? (Ownership plus operating?)

Reference no: EM131625166

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