Question

A 2000-pound, couterbalanced, electric forklift can be purchased for $25,000 plus $3000 for the charger and $3000 for a battery. The forklift's market value is 15% less for each of its first 6 years of service. After this period the market value declines at a rate of 7.5% for the next 6 years.

The battery has a life of 12 years and a salvage value of $300. The charger has a 12-year life and a $100 salvage value. The charger's market value declines 20% per year of use. The battery's market value declines by 15% of its purchase price each year. Maintenance of the charger and battery are minimal. The battery will most likely not work with a replacement forklift.

Maintenance of the forklift is $400 per year during Year 1 and 2 while the warranty is in place. In year 3 it jumps to $800 and increases $500 per year thereafter. What is the optimal ownership policy using i =10%?

Answer 1

	First Cost=25000+3000+3000	$31,000
	Market Value of Forklife in Year1	$21,250	25000*(1-0.15)
	Present Value Factor is calculated by using PV function of excel with Rate=10%, Nper=N,Fv=-1
	Annuity Factor is calculated by using PMT function of excel with Rate=10%, Nper=N,Pv=-1
		N	x	y	z	A=x+y+z	B	C=A*B	D=(31000-C)	E	F=E*B	G	H=G+D	I	J=H*I
		End of year	Market Value of Fork lift	Market Value of Battery	Market Value of Charger	Total Salvage Value	Present Value Factor (P/F) at 10%	PV of Salvage Value	PV of net capital cost	Maintenance Cost	PV of annual expense	Cumulative PV of annual Cashflow	PV of total Cash Flow	Annuity Factor(A/P)	Equivalent annualcost
		0
		1	$21,250	$2,550	$2,400	$26,200	0.9091	$23,818	$7,182	$400	$             364	$           364	$7,545	1.1000	$8,300
		2	$18,063	$2,168	$1,920	$22,150	0.8264	$18,306	$12,694	$400	$             331	$           694	$13,388	0.5762	$7,714
		3	$15,353	$1,842	$1,536	$18,732	0.7513	$14,073	$16,927	$800	$             601	$        1,295	$18,222	0.4021	$7,327
		4	$13,050	$1,566	$1,229	$15,845	0.6830	$10,822	$20,178	$1,300	$             888	$        2,183	$22,361	0.3155	$7,054
		5	$11,093	$1,331	$983	$13,407	0.6209	$8,325	$22,675	$1,800	$         1,118	$        3,301	$25,976	0.2638	$6,852
		6	$9,429	$1,131	$786	$11,347	0.5645	$6,405	$24,595	$2,300	$         1,298	$        4,599	$29,194	0.2296	$6,703
		7	$8,722	$962	$629	$10,312	0.5132	$5,292	$25,708	$2,800	$         1,437	$        6,036	$31,744	0.2054	$6,520
		8	$8,067	$817	$503	$9,388	0.4665	$4,380	$26,620	$3,300	$         1,539	$        7,575	$34,196	0.1874	$6,410
		9	$7,462	$695	$403	$8,560	0.4241	$3,630	$27,370	$3,800	$         1,612	$        9,187	$36,557	0.1736	$6,348
		10	$6,903	$591	$322	$7,815	0.3855	$3,013	$27,987	$4,300	$         1,658	$     10,845	$38,832	0.1627	$6,320
		11	$6,385	$502	$258	$7,145	0.3505	$2,504	$28,496	$4,800	$         1,682	$     12,527	$41,023	0.1540	$6,316
		12	$5,906	$300	$100	$6,306	0.3186	$2,009	$28,991	$5,300	$         1,689	$     14,216	$43,207	0.1468	$6,341
	Annual Equivalent Cost is LOWEST for 11 years	$6,316
	The Fork lift should be REPLACED after   11years
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