22. Green Helper Co. provides tractors to farmers on daily lease. The tractor in

Question

22. Green Helper Co. provides tractors to farmers on daily lease. The tractor initial price in $120,000. It can be used for 20 years with a salvage value of $10,000 at end of useful life. The tractor is expected to be leased for 100 days per year. The annual operating and maintenance cost is expected to be $2,000 per year. Fuel will be paid by customers. The company's MARR is 12%. What is the least amount that Green Helper Co. should ask for leasing for one day to make their investment profitable? . $179.27 ???26, 6 $193.12 (c) $159.27 (d) $192.13

Explanation / Answer

ANSWER:

Initial cost = $120,000

salvage value = $10,000

o and m cost = $2,000

leasing days = 100

n = 20 years

i = 12%

let the leasing amount per day be x

in order to make their investment profitable we will equate the present worth to zero.

pw = initial cost + o and m costs(p/a,i,n) + salvage value(p/f,i,n) + leasing days * x(p/a,i,n)

0 = -120,000 - 2,000(p/a,12%,20) + 10,000(p/f,12%,20) + 100x(p/a,12%,20)

120,000 = -2,000 * 7.469 + 10,000 * 0.1037 + 100x * 7.469

120,000 = -14,938 + 1,037 + 746.9x

120,000 + 14,938 - 1,037 = 746.9x

133,901 = 746.9x

x = 133,901 / 746.9

x = $179.27

so option a is the right answer.

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