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Capital investment decisions

An excavator has a purchase price of $2,000,000, has a rating of 1,500 kW, an estimated life of 10 years an annual operating usage of 2,500 hours. A return on investment of 15% is required. For the following conditions determine the owning cost, total operating and total cost per operating hour for the excavator.

a) Fuel cost $0.25/l, load factor 0.5, fuel consumption of 0.3 l/kW per hour
b) Lubrication @ 25% of fuel cost
c) Wear cost allowance = $ 19.75 per hour
d) Repair factor of 0.25 x 10-4, job factor of 1
e) Major overhaul every 10,000 hours, at 15% of capital cost
f) Maintenance labour costed on maintenance ratio of 1.25 hours/operating hour, personnel costing $45,000/ person year. Single operator required per shift, 3 shifts per day at an operator cost of $47,000 per person year

Solution Preview

Owning costs include buying the machine, producing a return on the equity employed, financing it, leasing it, keeping it from year to year and, finally, selling it. Some of these scenarios affect the owning cost, and some affect the operating costs. I do not see any that would affect both.

a) 25 x 450 25 x 450 , fuel consumption of 0.3 l/kW per hour

Hourly fuel consumption per hour is calculated by multiplying the hourly fuel consumption at full load by the load factor. Thus we have:
(.3 L/kw x 1500 kW) x .5 = 225 L fuel/hr
Then we can find ...

Solution Summary

Conditions affecting the decision to purchase an excavator