A project requires a crane for 15 days. The rental cost is $800 per day, or the contractor can purchase the crane for $45,000 and sell it after the project for $38,000. What is the cost difference between renting and buying?
Correct Answer
A) Renting costs $5,000 more
Rental cost = 15 days × $800 = $12,000. Purchase cost = $45,000 - $38,000 = $7,000. Renting costs $5,000 more than buying.
Why This Is the Correct Answer
Option A is correct because the total rental cost ($12,000) exceeds the net purchase cost ($7,000) by exactly $5,000. The rental calculation is straightforward: 15 days × $800/day = $12,000. The purchase cost calculation considers the net loss: $45,000 purchase price minus $38,000 resale value equals $7,000 net cost. The difference of $12,000 - $7,000 = $5,000 shows renting costs more.
Why the Other Options Are Wrong
Option B: Buying costs $5,000 more
This option incorrectly states that buying costs more when the calculations clearly show renting is more expensive. The net cost of buying ($7,000) is less than the rental cost ($12,000).
Option C: Renting costs $12,000 more
This option uses the wrong cost difference amount. While it correctly identifies that renting costs more, the actual difference is $5,000, not $12,000.
Option D: Buying costs $12,000 more
This option is wrong on both counts - it states buying costs more (incorrect direction) and uses the wrong dollar amount ($12,000 instead of $5,000).
Memory Technique
Remember 'RPN' - Rental vs Purchase Net cost. Always subtract resale value from purchase price to get the true cost of ownership before comparing to rental.
Reference Hint
Construction cost estimating and equipment management sections, typically found in project management or cost control chapters
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