C.2. A fleet of earthmoving equipment may be purchased for $2,000,000 cash. In an average year the fleet is expected to

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C 2 A Fleet Of Earthmoving Equipment May Be Purchased For 2 000 000 Cash In An Average Year The Fleet Is Expected To 1 (36.53 KiB) Viewed 13 times

C.2. A fleet of earthmoving equipment may be purchased for $2,000,000 cash. In an average year the fleet is expected to move 5,000,000 yd³ of the earth. The O & M costs are cur- rently running about $0.60/yd' but are expected to increase about 8 percent per year for the next five years. Earthmoving of this type is currently being successfully bid at about $0.90/yd³ but is expected to increase at the rate of about 5 percent per year. Overhead (su- pervision, clerical, home and field office, etc.) costs are running about $500,000 per year and are expected to remain fairly constant at that level. It is estimated that at the end of five years the fleet can be sold for $600,000. A prospective buyer says he will buy the fleet if it will return at least 15 percent on his invested capital. Should he buy the fleet? Show all the calculations.