How much should the owner of the machine charge per hour of use
A machine cost $245,000 to purchase. Fuel, oil, grease, and minor maintenance are estimated to cost $47.64 per operating hour. A set of tires cost $13,700 to replace, and their estimated life is 3,100 use hours. A $15,000 major repair will probably be required after 6,200 hr of use. The machine is expected to last for 9,300 hr, after which it will be sold at a price (salvage value) equal to 17% of the original purchase price. A final set of new tires will not be purchased before the sale. How much should the owner of the machine charge per hour of use, if it is expected that the machine will operate 3,100 hr per year? The company’s cost of capital rate is 8%.