Reference no: EM131627640

Your company has just been awarded a large contract that would be well suited for Caterpillar 740B Articulated Haul Trucks.

A local rental yard said that they will rent you the trucks for $13,200 per month plus 7.0% sales tax not including any operating costs. What would it cost to purchase the trucks instead of renting them?

The purchase price including sales tax and attachments is $575,000. The project will last 5 years and you are not sure that you will have work for the trucks after this project therefore you need to plan on selling them at the end of 5 years for 40% 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 1,800 hours of utilization per year on the trucks during all five years and they also anticipate 50 minute efficiency working hours.

According to the Chief Financial Officer of the company your cost of money is 6% and the annual insurance amount on each truck will be 0.5%. Your tire sales person says that a set of 6 tires will cost $25,000, last 3,800 hours and the average repairs will be about 15% 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 250 hours with oil, lube and filter cost at $15.00 per gallon, repair and maintenance cost is $5.00 per hour and your throttle load factor for articulated trucks is 60%.

Because they are trucks and will not be scraping the ground they do not have any high wear ground engaging items to wear out. Use the product specifications included with this assignment to determine the Gross Flywheel Horse Power, engine crankcase capacities and any other information that you may need. Diesel fuel is $2.50 per gallon for red dyed.

Question 1 : What is the Average Annual Investmentfor this machine?

Question 2 : What is the ownership cost per hour?

Question 3 : What is the operating cost per hour?

Question 4 : What is the total cost per hour to your company if you were to own this machine?

Question 5 : What is the total cost per hour to your company if you were to rent this machine?

Question 6 : For only this project, would it be more economical to rent or buy this machine? Explain why.

Question 7 : In considering owning vs renting, what is the breakeven point in hours (i.e. how many hours would you need to utilize the equipment before it becomes more economical to own the machine)?