2. The Scenario
• You run an FM Department.
• For maintenance and cleaning of parts of the
building, you need to use a hydraulic lift (aka cherry
picker)
• Is it better to buy or rent?
3. What does it Cost?
• Hire Costs, say 500 Crowns per week
• Purchase Price, say 100,500 Crowns
• Other Costs:
• Insurance, Maintenance, Fuel.
4. Other Costs
• Fuel – diesel or electricity. Same whether hire or
rent.
• Maintenance, if we rent, no maintenance costs to us.
If we buy, say 500 Crowns per year
• Insurance, if we rent, no insurance costs to us. If we
buy, say 200 Crowns per year
5. Time & Lifetime
• How much will we use it?
– Say 1 week per month
• How long will it last?
– Say 20 years.
7. Appraisal – Purchase
Purchase Lifetime 20years
Capital
Cost K100,500
Insurance K200pa
Maintena
nce K500pa
Annual
Costs K700pa
PV £1
20years @
5.00% 12.462 K8,723
NPV K109,223
SAY
K110,0
00
8. Appraisal - Rent
Rent Lifetime Unlimitedyears
Hire Cost K500pw
12weeks pa K6,000pa
PV £1 pa
In
perpetuit
y @
5.00% 19.84
NPV K119,040
Say
K120,0
00
9. Further Considerations
• What happens after 20 years? Need to buy a new
one.
• Annual Sinking Fund to recover K100,500 in 20 years
@ 5% =
• K100,500 * 0.04632 = K4,655 pa
• Might be able to sell the old cherry picker, say
K2,000, in 20 years time
10. Purchase Lifetime 20years
Capital Cost K100,500
Insurance K200pa
Maintenance K500pa
Sinking Fund K4,655pa
Annual
Costs K5,355pa
PV £1
20years @
5.00% 12.462 K66,734
NPV K167,234
Add
Re-sale Value K2,000
Deferred 20years @
5.00% 0.37689
K754
NPV K167,988
SAY K170,000
11. More Considerations
• What if we are wrong about how much we will use
the Cherry Picker?
• What if we use it more than 1 week in 4?
– Properties getting older, need more maintenance
– Business expanding, more buildings.
12. Rent Lifetime Unlimited years
Hire Cost K500pw
18weeks pa K9,000pa
PV £1 pa
In perpetuity @
5.00% 19.84
NPV K178,560
Say K180,000
13. Allowing for different circumstances
• Create a spreadsheet
– Can apply different models
– Different costs
– Different timescales
– Different rates