An equipment rental firm purchased a new scissor lift to add to its rental fleet

Question

An equipment rental firm purchased a new scissor lift to add to its rental fleet. The scissor lift cost $22,000 and is expected to have a useful life of 5 years. The salvage value at the end of the lift's useful life is estiamted to be $2,000. Maintenance and ownership costs for the lift are estimated to be $10 per hour rented, and the lift is expected to rented for 800 hours per year. Using an MARR of 7%, determine the lowest rental rate that the company should use. Express your answer in $/hr to the nearest cent.

Explanation / Answer

Let X be the lowest rental rate that the company should use.

($22,000 - $2,000) = $X * 800 hours per year (1/(1+0.07)1) + ……. + X*800 (1/(1+0.07)5)

$20,000 = $X * 800 (4.1)

$20,000 = 3280 * $X

$6.1 = X

So, lowest rental rate = $6.1 + $10 = $16.1 per hour

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