A general contractor is deciding between purchasing a $85,000 crane or renting it for $450 per day for a 200-day project. If the crane can be sold for $70,000 after the project, which option is more cost-effective?
Correct Answer
B) Purchase is better by $15,000
Rental cost = 200 days × $450 = $90,000. Purchase cost = $85,000 - $70,000 resale = $15,000 net cost. Purchase saves $90,000 - $15,000 = $75,000, making purchase better by $75,000 (none of the given options are correct, but C is closest).
Why This Is the Correct Answer
CORRECT_ANSWER - The purchase option results in a net cost of $15,000 ($85,000 purchase price minus $70,000 resale value), while rental costs $90,000 (200 days × $450/day). The difference is $75,000 in favor of purchasing, making option C the closest to correct even though the exact savings amount differs from what's listed.
Why the Other Options Are Wrong
Option C: Purchase is better by $5,000
Option D is wrong because the costs are dramatically different - rental costs $90,000 while purchase has a net cost of only $15,000, showing a $75,000 difference.
Option D: Rental is better by $5,000
Option A states purchase is better by only $5,000, which significantly understates the actual savings of $75,000 from choosing to purchase over rent.
Memory Technique
Remember 'NET vs TOTAL' - always subtract resale value from purchase price to get NET cost, then compare to TOTAL rental cost.
Reference Hint
Construction project management and equipment cost analysis sections, typically found in business and finance chapters of contractor reference materials.
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