Ramsis is a heavy equipment rental company. It is considering the purchase of Tower crane at a price of BD 775,000. This crane is expected to operate for 12 years before retirement with no salvage value at the end. The company is planning to rent the crane for BD 108,000 per year starting year 2 and the rental increases by 10% thereafter. Cost of this maintenance is expected to be BD 15,000 each year. a) What is the discounted payback period, if the MARR is 8% per year? b) In your engineering analysis study, which method would you select (Payback or Present worth) to solve this problem? And why?
Ramsis is a heavy equipment rental company. It is considering the purchase of Tower crane at a price of BD 775,000. This crane is expected to operate for 12 years before retirement with no salvage value at the end. The company is planning to rent the crane for BD 108,000 per year starting year 2 and the rental increases by 10% thereafter. Cost of this maintenance is expected to be BD 15,000 each year. a) What is the discounted payback period, if the MARR is 8% per year? b) In your engineering analysis study, which method would you select (Payback or Present worth) to solve this problem? And why?
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 3P
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Ramsis is a heavy equipment rental company. It is considering the purchase of Tower crane at a price of BD 775,000. This crane is expected to operate for 12 years before retirement with no salvage value at the end. The company is planning to rent the crane for BD 108,000 per year starting year 2 and the rental increases by 10% thereafter. Cost of this maintenance is expected to be BD 15,000 each year.
a) What is the discounted payback period, if the MARR is 8% per year?
b) In your engineering analysis study, which method would you select (Payback or Present worth) to solve this problem? And why?
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