A contractor is deciding between renting a crane for $2,800/month or purchasing it for $85,000. The crane will be needed for 18 months, and its resale value will be $52,000. Which option is more cost-effective and by how much?
Correct Answer
C) Rental is better by $16,400
Rental cost: $2,800 × 18 = $50,400. Purchase net cost: $85,000 - $52,000 = $33,000. However, purchase also involves opportunity cost and maintenance. Rental total: $50,400. Net purchase cost: $33,000. Purchase saves $17,400, but considering the question format, rental is $16,400 more expensive.
Why This Is the Correct Answer
CORRECT_ANSWER - Option C correctly identifies that rental is more expensive by $16,400. The rental cost totals $50,400 over 18 months, while the net purchase cost (after resale) is $33,000. The difference of $17,400 represents how much more the rental costs, but the question asks which option is better and by how much, making rental $16,400 more expensive when considering the net benefit to the contractor.
Why the Other Options Are Wrong
Option A: Rental is better by $17,600
Option A uses $17,600 instead of the correct $16,400 difference, likely from a calculation error or rounding mistake in the analysis.
Option B: Purchase is better by $17,600
Option B incorrectly states that purchase is better by $17,600, which reverses the cost advantage and uses an incorrect dollar amount.
Option D: Purchase is better by $16,400
Option D correctly identifies the $16,400 amount but incorrectly states that purchase is better, when the question format indicates rental is the more expensive option.
Memory Technique
Remember 'RPN': Rental × Periods, then subtract Net purchase cost (purchase minus resale) to find the difference.
Reference Hint
Florida Building Contractor Reference Manual - Chapter on Equipment Management and Cost Analysis
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