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Q A contractor purchase an equipment with a delivered price of (750000$) to operate it in one of his projects. He estimate the cost of this equipment according to the following justification - Total interest rate (including bank interest, storage, insurance, .) =15 % - Consumption of (oil, fuel, and grease) =(8.25 S/hr) - Cost of maintenance and repair = 60% of the annual straight line depreciation - salvage value = 150000 $ - Useful life = (10 years) with (1400 hours used per year). a- Determine the probable cost per hour according to the previous justification. b- After (7 years) of operating the equipment, the contractor recorded

Q A contractor purchase an equipment with a delivered price of (750000$) to operate it in one of his projects. He estimate the cost of this equipment according to the following justification - Total interest rate (including bank interest, storage, insurance, .) =15 % - Consumption of (oil, fuel, and grease) =(8.25 S/hr) - Cost of maintenance and repair = 60% of the annual straight line depreciation - salvage value = 150000 $ - Useful life = (10 years) with (1400 hours used per year). a- Determine the probable cost per hour according to the previous justification. b- After (7 years) of operating the equipment, the contractor recorded

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Q/ A contractor purchase an equipment with a delivered price of (750000$) to operate it in one of his projects. He estimate the cost of this equipment according to the following justification - Total interest rate (including bank interest, storage, insurance, .) =15 % Consumption of (oil, fuel, and grease) =(8.25 S/hr) - Cost of maintenance and repair = 60% of the annual straight line depreciation - salvage value = 150000 S Useful life = (10 years) with (1400 hours used per year). a- Determine the probable cost per hour according to the previous justification. b- After (7 years) of operating the equipment, the contractor recorded all the costs of the equipment as shown in the table blow. He notice the increment in the average consumption and maintenance in the last two years (the 6", and 7th years). Calculate the average cost per hour of the equipment for the first five years, according to the salvage value of the equipment at the end of the 5th year = (200000$). Fuel oil Grease Maintenance Year consumption consumption consumption and repair S/hr liter / hr liter / ha kg / hr 20 4 0.2 0.05 22 4.25 0.22 0.07 3 25 4.75 0.35 0.1 28 5.1 0.4 0.12 5 32 5.2 0.41 0.18 41 8 1.5 0.3 48 8.5 2.25 0.35 Unit price 0.5 S/liter 10S/liter 4S/kg c- After the Deterioration of the equipment at the 6", and 7h years it had been estimate the salvage value of the equipment at the end of the 7th year = (92000 $). ). Calculate the average cost per hour of the equipment during the seven years. d- It was clear by checking the equipment at the end of the 7t year, the equipment needs a major repair which will cost (90000$), but it will return the performance of the equipment like the average performance at the first five years In terms of consumption of fuel, oil, and grease for the next four years (8", 9h, 10", 11 year), and the salvage value of the equipment at the end of these four years = (50000S). Do you agree to do this major repair, or you prefer sell the equipment now (at the end of the 7" year). Support your answer with calculation. Suppose all the prices and interest are constant.
Transcribed Image Text:Q/ A contractor purchase an equipment with a delivered price of (750000$) to operate it in one of his projects. He estimate the cost of this equipment according to the following justification - Total interest rate (including bank interest, storage, insurance, .) =15 % Consumption of (oil, fuel, and grease) =(8.25 S/hr) - Cost of maintenance and repair = 60% of the annual straight line depreciation - salvage value = 150000 S Useful life = (10 years) with (1400 hours used per year). a- Determine the probable cost per hour according to the previous justification. b- After (7 years) of operating the equipment, the contractor recorded all the costs of the equipment as shown in the table blow. He notice the increment in the average consumption and maintenance in the last two years (the 6", and 7th years). Calculate the average cost per hour of the equipment for the first five years, according to the salvage value of the equipment at the end of the 5th year = (200000$). Fuel oil Grease Maintenance Year consumption consumption consumption and repair S/hr liter / hr liter / ha kg / hr 20 4 0.2 0.05 22 4.25 0.22 0.07 3 25 4.75 0.35 0.1 28 5.1 0.4 0.12 5 32 5.2 0.41 0.18 41 8 1.5 0.3 48 8.5 2.25 0.35 Unit price 0.5 S/liter 10S/liter 4S/kg c- After the Deterioration of the equipment at the 6", and 7h years it had been estimate the salvage value of the equipment at the end of the 7th year = (92000 $). ). Calculate the average cost per hour of the equipment during the seven years. d- It was clear by checking the equipment at the end of the 7t year, the equipment needs a major repair which will cost (90000$), but it will return the performance of the equipment like the average performance at the first five years In terms of consumption of fuel, oil, and grease for the next four years (8", 9h, 10", 11 year), and the salvage value of the equipment at the end of these four years = (50000S). Do you agree to do this major repair, or you prefer sell the equipment now (at the end of the 7" year). Support your answer with calculation. Suppose all the prices and interest are constant.
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