A contractor needs a crane for 45 days. The daily rental rate is $850, or the crane can be purchased for $280,000 with an expected resale value of $240,000. What is the cost difference between renting and buying?
Correct Answer
A) Renting costs $1,750 more
Rental cost: 45 days × $850 = $38,250. Purchase cost (net): $280,000 - $240,000 = $40,000. Difference: $40,000 - $38,250 = $1,750 more to buy, meaning renting costs $1,750 less, or buying costs $1,750 more.
Why This Is the Correct Answer
Option A is correct because the rental cost is 45 days × $850 = $38,250, while the net purchase cost is $280,000 - $240,000 = $40,000. The difference is $40,000 - $38,250 = $1,750. Since buying costs $1,750 more than renting, this means renting costs $1,750 less than buying, making renting the more economical choice by $1,750.
Why the Other Options Are Wrong
Option B: Renting costs $2,250 more
This option incorrectly states the cost difference as $2,250. The actual calculation shows rental costs $38,250 and net purchase costs $40,000, creating a difference of only $1,750, not $2,250. This error likely comes from miscalculating either the rental total or the net purchase cost.
Option C: Buying costs $2,250 more
This option reverses the cost relationship and uses the wrong amount. It claims buying costs $2,250 more, but the calculation shows buying actually costs $1,750 more than renting, not $2,250. The direction of the cost difference is also incorrectly stated.
Option D: Buying costs $1,750 more
This option correctly identifies that buying costs more but incorrectly phrases the answer. Since buying costs $1,750 more than renting, it means renting costs $1,750 less, not that renting costs $1,750 more. The mathematical relationship is backwards in this option's wording.
Memory Technique
Remember 'RENT vs BUY': Calculate Rental total, subtract Expected resale from purchase price, Note the difference, Then compare which costs more.
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