NICMAR

National Institute of Construction Management and Research

E-PGP-QSS
Module III

Date of Submission :

Name of the candidate :

Roll No (as per MS teams ID) :

Subject Name and Faculty name : Prof. Bablu Rajput

Question 01 : A contractor purchased a new crawler tractor 3 years ago with the capital cost of
Rs 9800000. The tractor has an estimated useful life of 12000 hrs. and an estimated salvage
value at the end of its useful life of 20 % of capital cost. The estimated major repair cost for the
tractor is Rs 400000 which needs to pay after every 6000 hrs. The contractor wants to
determine an equipment rate for the tractor under the following three scenarios:
2
a. Average usage of 1000 hrs per year
b. Average usage of 1200 hrs per year
c. Average usage of 1500 hrs per year
Operating cost for the tractor is Rs. 2000/hr. The contractor desires a profit of 3 % on his
equipment fleet and a minimum attractive rate of return of 12 %.
i) What equipment rate should the contractor use for each equipment usage scenario?
ii) The contractor plans to use the tractor for site cleaning of a building project site. He has
evaluated the site working conditions and estimated the tractor productivity as 20 m3/hr. What
is the unit cost of site cleaning in Rs/m3 for the three scenarios?

Ans:
Cost of Capital of Tractor = Rs. 98,00,000/-
Useful Life of Machine = 12,000 Hrs.
Salvage value of Machine = 20% of Capital Cost = 9800000 x 20% = Rs. 19,60,000/-
Major Repair Cost = Rs. 4,00,000/ 6000 Hrs. = Rs. 66.667/Hrs.
Operating Cost = Rs. 2000/ Hour
Contractor Profit = 3%
Attractive Rate of Return = 12%

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Case a.
Average working hours per year
No of Years
Annual of Capital Cost (A Capital)
= 1000 Hrs. / year
= Useful life/ Working hour
= 12000/1000 = 12 Years
n n
= A [i (1+i) ) / (1+i) -1)]

= Rs. 15,82,081/-
n
Annual of Salvage (A Salvage) = F i/ ((1+i) -1)

= Rs. 81,216 /-
n
Present Cost of Repairing = F /(1+i)

= Rs. 2,02,652/-
n n
Annual Cost of Maintenance = A [i (1+i) ) / (1+i) -1)]

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= Rs. 32,716/-

Annual Owning Cost = Annual Capital Cost +

Annual Cost of Maintenance – Salvage Value
= Rs. 15,33,580/-
Hourly Owning Rate = Annual Owning Cost/ Working Hours
= Rs. 1,534/-
Hourly Operating Cost = Rs. 2000/ Hour (Given)
Hourly Working Rate = (Hourly Owning Rate + Hourly Operating Cost ) +
Operating Profit
= Rs. 3640/Hour
Unit Cost of Site Clearing = 3640/20 = Rs. 182 /m3

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Case b.
Average working hours per year = 1200 Hrs. / year
No of Years = Useful life/ Working hour
= 12000/1200 = 10 Years
n n
Annual of Capital Cost (A Capital) = A [i (1+i) ) / (1+i) -1)]

= Rs. 17,34,445 /-
n
Annual of Salvage (A Salvage) = F i/ ((1+i) -1)

= Rs. 1,11,689 /-
n
Present Cost of Repairing = F /(1+i)

= Rs. 2,26,971 /-
n n
Annual Cost of Maintenance = A [i (1+i) ) / (1+i) -1)]

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= Rs. 40,170/-

Annual Owning Cost = Annual Capital Cost +

Annual Cost of Maintenance – Salvage Value
= Rs. 16,62,926 /-
Hourly Owning Rate = Annual Owning Cost/ Working Hours
= Rs. 1,386 /-
Hourly Operating Cost = Rs. 2000/ Hour (Given)
Hourly Working Rate = (Hourly Owning Rate + Hourly Operating Cost ) +
Operating Profit
= Rs. 3,487 /Hour
Unit Cost of Site Clearing = 3487/20 = Rs. 174 /m3

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Case c.
Average working hours per year
No of Years
Annual of Capital Cost (A Capital)
= 1500 Hrs. / year
= Useful life/ Working hour
= 12000/1500 = 8 Years
n n
= A [i (1+i) ) / (1+i) -1)]

= Rs. 19,72,768 /-
n
Annual of Salvage (A Salvage) = F i/ ((1+i) -1)

= Rs. 1,59,354 /-
n
Present Cost of Repairing = F /(1+i)

= Rs. 2,54,207 /-
n n
Annual Cost of Maintenance = A [i (1+i) ) / (1+i) -1)]

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= Rs. 51,173 /-

Annual Owning Cost = Annual Capital Cost +

Annual Cost of Maintenance – Salvage Value
= Rs. 18,64,587 /-
Hourly Owning Rate = Annual Owning Cost/ Working Hours
= Rs. 1,243 /-
Hourly Operating Cost = Rs. 2000/ Hour (Given)
Hourly Working Rate = (Hourly Owning Rate + Hourly Operating Cost ) +
Operating Profit
= Rs. 3,340 /Hour
Unit Cost of Site Clearing = 3340/20 = Rs. 167/m3

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