Equivalent uniform annual worth of initial cost: A1
Initial cost less cost of tires = Rs.5500000 – Rs.400000 = Rs.5100000
Equivalent uniform annual worth of salvage value: A2
Salvage value = Rs.900000
In the above expression, (A1-A2) is the equivalent uniform annual worth of the depreciation cost of the equipment considering time value of money.
Equivalent uniform annual worth of tire cost: A3
The equipment will require 3 sets of replacement tires in addition to the original set. The first replacement set will be required at the end of 3rd year, second set at the end of 6th year and third set at the end of 9th year. In order to find out the equivalent uniform annual worth of tire cost, first the equivalent present worth of cost of replacement tires is calculated using the appropriate compound interest factor followed by adding it to the cost of original set (initial set) of tires and then converting the equivalent present worth to equivalent uniform annual cost over the entire useful life of 10 years using the appropriate compound interest factor.
Equivalent uniform annual worth of repair cost: A4
Cost of repair work at the end of year ‘6' = Rs.450000.
The total hourly cost for the construction equipment:
Hourly ownership cost + hourly operating cost = Rs.348.90/h + Rs.108.3/h
= Rs.457.2/h