An equipment rental firm purchased a new scissor lift to add to its rental fleet
ID: 2764098 • Letter: A
Question
An equipment rental firm purchased a new scissor lift to add to its rental fleet. The scissor lift cost $17,000 and is expected to have a useful life of 3 years. The salvage value at the end of the lift's useful life is estimated to be $5,000. Maintenance and ownership costs for the lift are estimated to be $9 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
Solution :
Let 'a' be the per hour rent
calculation
Present value
Initial cost
- 17,000.00
salvage
5000*0.816298
4,081.49
rent
800*2.624316*a
2,099.45
2099.45a+4081.49-17000=0
a=12918.51/2099.45 = $ 6 per hour
Year
Discount factor @ 7%
1
0.934579439
2
0.873438728
3
0.816297877
2.624316044
Let 'a' be the per hour rent
calculation
Present value
Initial cost
- 17,000.00
salvage
5000*0.816298
4,081.49
rent
800*2.624316*a
2,099.45
2099.45a+4081.49-17000=0
a=12918.51/2099.45 = $ 6 per hour