A contractor must decide between purchasing equipment for $120,000 or renting it for $2,800 per month. The equipment has a 5-year useful life with 20% salvage value. What additional factors should influence this decision?
Correct Answer
B) Project duration, maintenance costs, storage, and utilization rates
Equipment purchase vs. rental decisions require considering project duration, ongoing maintenance costs, storage requirements, expected utilization rates, and opportunity cost of capital, not just basic cost comparisons.
Why This Is the Correct Answer
Option B correctly identifies that equipment purchase vs. rental decisions are complex business decisions requiring analysis of multiple factors beyond simple cost comparison. Project duration determines whether the equipment will be used long enough to justify purchase costs. Maintenance costs, storage requirements, and utilization rates all significantly impact the true cost of ownership. These factors combined with opportunity cost of capital provide the complete picture needed for informed decision-making.
Why the Other Options Are Wrong
Option A: Only the monthly payment comparison
Monthly payment comparison alone is insufficient because it ignores critical factors like project duration, maintenance responsibilities, storage costs, and how intensively the equipment will be used throughout the project.
Option C: Only the total project cost
Total project cost is important but represents only one piece of the decision puzzle, ignoring operational factors like maintenance, storage, utilization efficiency, and the contractor's specific project needs and timeline.
Option D: Only the equipment's age and condition
Equipment age and condition are relevant factors but represent only a small portion of the analysis needed, completely overlooking project-specific factors like duration, maintenance costs, storage needs, and utilization rates.
Memory Technique
Use 'PMSU' - Project duration, Maintenance costs, Storage needs, Utilization rates - the four key operational factors beyond basic cost comparison
Reference Hint
Business and Finance for Contractors chapter on Equipment Management and Capital Investment Analysis
More Contract Admin Questions
A project experiences a 30-day delay due to unusually severe weather. The contract includes a liquidated damages clause of $1,000 per day for delays. If the weather delay is excusable but not compensable, what liquidated damages apply?
A commercial project requires a total of 12 inspections. The building department charges $85 per inspection for the first 5 inspections, $65 for inspections 6-10, and $45 for any additional inspections. What is the total inspection fee?
What document must be posted at the job site before a Certificate of Occupancy can be issued for a commercial building?
A mixed-use development requires a variance for reduced setbacks. The property is located within 500 feet of a hospital. What additional consideration must be addressed?
A LEED project requires tracking of regional materials. Materials are considered regional if they are extracted, harvested, or recovered, as well as manufactured within what distance of the project site?
People Also Study
Business & Financial Management
120 questions · 70% to pass
Project Management
60 questions · 70% to pass
Previous Question
A project requires 2,400 square feet of drywall installation. If a crew can install 300 square feet per day at a labor cost of $45 per hour for 8-hour days, what is the total labor cost for drywall installation?
Next Question
What percentage contingency is typically appropriate for a well-defined commercial project during the design development phase?