A contractor is estimating the cost to rent a crane for 45 days. The rental rate is $1,200 per day, but there is a monthly rate of $22,000. What is the most cost-effective option?
Correct Answer
C) Monthly rate: $44,000
Daily rate for 45 days: 45 × $1,200 = $54,000. Monthly rate for 2 months: 2 × $22,000 = $44,000. The monthly rate is more cost-effective even though it covers 60 days versus the needed 45 days.
Why This Is the Correct Answer
Option B is correct because when comparing rental options, you must calculate the total cost for each viable option and choose the lowest. The daily rate for 45 days costs $54,000, while renting for 2 full months (60 days) at the monthly rate costs only $44,000. Even though the monthly option provides 15 extra days of rental, it's still $10,000 cheaper than the daily rate for exactly 45 days. This demonstrates that longer-term rental rates often provide better value even when you don't need the full duration.
Why the Other Options Are Wrong
Option A: Purchase the crane instead
Option D suggests purchasing instead of renting, but no purchase price information is provided in the problem, making this option impossible to evaluate or justify.
Option B: Daily rate: $54,000
Option A shows the daily rate calculation ($54,000) but this is the most expensive option, not the most cost-effective choice.
Option D: Combination of monthly and daily rates: $37,000
Option C suggests a combination approach costing $37,000, but this calculation is not supported by the given rental terms and appears to be an incorrect mathematical combination.
Memory Technique
Remember 'Monthly Means More savings' - longer rental periods typically offer better rates per day, even if you pay for unused time
Reference Hint
Construction project management and cost estimation chapters, specifically equipment rental and cost analysis sections
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