NPV A coal stripping company currently operates three dozers for reclamation work To reduce costs th

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NPV

A coal stripping company currently operates three dozers for
reclamation work To reduce costs three alternatives are being considered for
the future: rebuild the present equipment, purchase new dozers and employ a
contractor Details of the alternatives are given overleaf:

Rebuild Purchase Contractor

No of units required 3 2
N/A

Initial cost per unit $360,000
$920,000 $0

Annual costs per unit:

Maintenance $140,000 $85,000

Labour $240,000 $160,000 $525,000

Supplies $58,000 $42,000

Life 8 years 8 years 8 years

Salvage value per unit $0 $120,000 $0

If interest is 8% annually, which alternative should be
selected?

 
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