Adozer cost $300,000 to purchase, and the machine useful life is 10 years and 10,000 operating hours. the salvage value of the equipment at the end of 10 years is 20% of the purchase price. the maintenance cost for the equipment is $30 per operating hour. a major engine repair is expected in 5 years for $30,000. if the company cost of capital rate is 10%, how much should the owner of the machine charge per hour of use if the machine is expected to operate 1,000 hours per year?

The owner has to charge $78.10 per hour

Explanation:

Hi, in order to find the price per hour, we need to establish the equation with all the information given, that is bringing to present value all the future cash flows, both positive and negative.

that is

Cost + PV maintenance + PV major repairs = PV(Revenue) + PV Salvage Value

So, everything should look like this:

Now, we solve for "A", which is the annual value to charge for the dozer, for 10 years.

A= $78,090.46  

So, the annual revenue of the dozer would have to be $78,090.46, but since it works 1,000 hours per year, the owner would have to charge $78,090.46 / 1,000 = $78.10 (rounded so we get a little excess)

Best of luck.

of the three mortgage options that demarco and tanya have to choose from, the balloon payment mortgage would be their best option, over adjustable payment and fixed payment plans.ultimately, the balloon payment plan would save demarco and tanya overall, in interest, would cost less monthly, and they would only have to make these payments for 8 years, opposing to 30 years for adjustable or fixed payment plans. 

overall, demarco and tanya would save $80,811 if they chose balloon payments over fixed payments, and would save $116,711 if they choose balloon payments over adjustable payments. benefits with choosing fixed payments over adjustable payments is that, in the end, the payments will still be $836.30 a month, while with adjustable payments, the initial monthly payments will be $763.38 to $1082.70 a month, ultimately leading to a more costly purchase. benefits with choosing fixed payments over balloon payments are not present. benefits in choosing adjustable payments over is that it has a lower interest rate, and starts with lower monthly payments initially. benefits in choosing adjustable payments over balloon payments include a lower interest rate, and lower initial monthly payments. benefits in choosing balloon payments over fixed payments include lower interest rates, lower overall price, lower monthly payments, takes less time to pay off, and does not require a downpayment. benefits in choosing balloon payments over adjustable payments include, lower monthly payments (when averaged), takes less time to pay off, and lower overall price.

hence, option c, balloon payments, is the best option for demarco and tanya to make this purchase, for it will save them a minimum of $80811, and a maximum of $116,711.