Question

Your boss states that he will be purchasing a front end loader for the project. He is considering either a Caterpillar or John Deere. The Caterpillar has 20 year expected life after which it can be sold for $50,000. It will cost $125,000 to purchase and $6,000 per year in maintenance costs. The John Deere has 15 year expected life after which it can be sold for $30,000. It will cost $120,000 to purchase and $10,000 per year in maintenance costs. Which machine will cost less?

Answer 1

Given

cost of caterpillar is $125000

maintenance cost for a year is $6000

Total expenses for 20 years = 125000+20*6000 =245000$

caterpillar can be sold for $50000

therefore net expense on caterpillar for 20 years = 245000-50000=195000$

Cost of John deere = $120000

maintenance cost for a year is $10000

Total expenses for 15 years of life = 120000+15*10000=$270000

john deere can be sold for $ 30000

Therefore net expenses on john deere for 15 years =270000-30000=240000$

Since net expenses on john deere for 15 years of life >net expenses on caterpillar for 20 years

Caterpillar costs less.