The document compares the costs of buying versus renting a hydraulic lift (cherry picker) for building maintenance. It calculates the net present value of both options using different assumptions for usage, costs, and timelines. The purchase option has higher initial costs but lower ongoing costs, while renting has no upfront cost but higher annual fees. Creating a spreadsheet allows testing different scenarios to account for uncertainty and changing circumstances over time. The optimal choice depends on the specific assumptions used for each unique situation.
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 K200 pa
Maintenance K500 pa
Annual
Costs K700 pa
PV £1
20years @
5.00% 12.462 K8,723
NPV K109,223
SAY K110,000
8. Appraisal - Rent
Rent Lifetime Unlimited years
Hire Cost K500 pw
12weeks pa K6,000 pa
PV £1 pa
In perpetuity @
5.00% 19.84
NPV K119,040
Say K120,000
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 K200 pa
Maintenance K500 pa
Sinking Fund K4,655 pa
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