An equipment rental firm purchased a new scissor lift to add to its rental fleet
ID: 2495582 • Letter: A
Question
An equipment rental firm purchased a new scissor lift to add to its rental fleet. The scissor lift cost $25,000 and is expected to have a useful life of 2 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 $6 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
Initial cost = 25,000
Useful life = 2 years
Salvage value = 2,000
Maintenance cost /year= 6 *800 = 4,800
MARR = 7 %
NPW2=0 = -25,000 + (B-4,800)(P/A, 7%, 2) + 2,000(P/F, 7%, 2)
0= -25000 +(B- 4,800)*1.808 + 2,000*0.873
0= -25000 + 1.808B-8678.40 + 1746
0= -31932.40 + 1.808B
B = 31932.40 / 1.808 = 17,661.726
lowest rental rate = 17,661.726/ 800 = 22.08
So the lowest rent = 22 / hr