Scenario In a construction project the equipment and materia

Scenario:

In a construction project, the equipment and materials are some of the man resources of the main resources. The equipment may include loaders, dozers, etc. and the material may include oil, tires, spare parts, etc. A construction project leader should determine the resource required, i.e. equipment and materials required. In the following cases, the calculations to determine resource (e.g. material) requiements are faced.

You are also requested to determine the resource required of this case. Calculate

i) the hourly tire cost that should be part of machine operating cost if a set of tires can be expected to last 5,000 hr. Tire cost $38,580 per set of four. Tire repair cost is estimated to average 16% of the straight-line tire depreciation. The company\'s cost of capital rate is 8% if this case is not cosidering the time of value of money.

Also,

ii) find out the future value after 2 years. You should also show that effective thinking has taken place in unfamilar contexts, i.e. calculating the tire cost in this case.

Solution

(i)
Its given that for this case we are not supposed to consider the time of value of money .

=> Repairing the tire will cost = 16% of 38580 = 6172.8
now we are given that the tires are expected to last 5000 hours

=> hourly cost of repairing the tire = 6172.8/5000 = $ 1.235per hour

a set of 4 tires costs = 38580

so the cost of using the tire per hour = 38580/5000 = $ 7.716 per hour

hence the total operating cost is = 1.235 + 7.716 = $ 8.951 per hour