A contractor needs to estimate the cost of a backup generator for a 30-day rental period. The generator costs $150,000 new, has a 10-year useful life, and the rental rate is $400 per day. What is the ownership cost per day assuming straight-line depreciation?
Correct Answer
B) $41.10
Annual depreciation = $150,000 ÷ 10 years = $15,000. Daily ownership cost = $15,000 ÷ 365 days = $41.10 per day (excluding interest, insurance, and maintenance).
Why This Is the Correct Answer
The correct answer uses straight-line depreciation to calculate daily ownership cost. First, the annual depreciation is calculated by dividing the initial cost ($150,000) by the useful life (10 years), which equals $15,000 per year. Then, this annual depreciation is divided by 365 days to get the daily ownership cost of $41.10. This represents the daily cost of owning the equipment based solely on depreciation.
Why the Other Options Are Wrong
Option A: $45.50
This answer ($35.62) is too low and likely results from an incorrect calculation, possibly using 30 days instead of 365 days in the denominator or making an error in the depreciation calculation.
Option C: $35.62
This answer ($52.75) is significantly higher than the correct calculation and likely includes costs beyond straight-line depreciation or uses an incorrect formula altogether.
Option D: $52.75
This answer ($45.50) is too high and suggests an error in the calculation process, possibly including additional costs that weren't specified in the problem or using an incorrect time period.
Memory Technique
Use the acronym 'PAY' - Purchase price ÷ Annual life ÷ Year (365 days) = daily ownership cost. This helps remember the three-step process for equipment depreciation calculations.
Reference Hint
Look up equipment depreciation and cost estimation in construction management or accounting sections of your reference materials, typically found in project cost control chapters.
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?
An indemnification clause in a construction contract typically requires the contractor to:
A property owner wants to convert a single-family home into a duplex in an area zoned for single-family residential use. The conversion meets all building codes but violates density requirements. What approval is needed?
As-built drawings are typically required to be submitted:
AIA Document A401 is primarily used for:
A general contractor is building a 12,000 square foot commercial warehouse. The building permit fee is calculated at $8.50 per $1,000 of construction value. If the project value is $2,400,000, what is the building permit fee?
People Also Study
Business & Financial Management
120 questions · 70% to pass
Project Management
60 questions · 70% to pass
Related Study Resources
Previous Question
A project requires a bulldozer for site preparation. The equipment can be rented for $650 per day or the contractor can use their owned equipment. The owned equipment has daily costs of $180 for fuel, $45 for maintenance, and $95 for operator. What is the daily savings of using owned equipment?
Next Question
A project has a contract value of $850,000. The owner retains 10% on each payment application. If the contractor has submitted applications totaling $680,000, what is the total amount of retainage being held?