How much should the owner of the machine charge per hour of use?
A truck dozer cost $16300 to purchase. Fuel, oil, grease and minor maintenance are estimated to cost $32 per hour. A major engine repair costing $12000 will probably be required after 7200 hr of use. The expected resale price (salvage value) is 21% of the original purchase price. The machine should last 10800 hr. How much should the owner of the machine charge per hour of the use if it is expected that machine will operate 1800 hr per year? The company’s cost of capital rate is 7.3%.