Use the following information to answer the question A farmer is contemplating the purchase of a...

Use the following information to answer the question

A farmer is contemplating the purchase of a 600 HP 4WD tractor with a purchase price of $685,000 and a 33% retained value. The optimal years of use are 15. The annual hours of use are 450. Fuel use is 91 L/hr at a cost of $0.90/L. Repair rates are 2.5% of the purchase price per year. Insurance and housing is 1% of purchase price. The interest rate is 3.0%.

What are the Total Ownership Costs (fixed costs) per hour of use? Remember Ownership Costs include depreciation, interest on investment plus insurance and housing.

Solutions

Expert Solution

Total cost of ownership (TCO) is the purchase price of an asset plus the costs of operation

Given,

purchase price of $685,000 and a 33% retained value.

The optimal years of use are 15.

The annual hours of use are 450.

Fuel use is 91 L/hr at a cost of $0.90/L.

Repair rates are 2.5% of the purchase price per year.

Insurance and housing is 1% of purchase price.

The interest rate is 3.0%

ekkarill92 answered 1 year ago

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