Your company needs a $250,000 excavator for 18 months. The purchase price is $250,000 with a resale value of $180,000 after 18 months. Monthly rental cost is $4,500. What is the cost difference between renting and buying?
Correct Answer
D) Renting costs $11,000 more
Rental cost: $4,500 × 18 = $81,000. Purchase cost: $250,000 - $180,000 = $70,000 net cost. Renting costs $11,000 more than buying ($81,000 - $70,000 = $11,000).
Why This Is the Correct Answer
Option A is correct because it properly calculates both the total rental cost and the net purchase cost, then compares them accurately. The rental cost over 18 months is $4,500 × 18 = $81,000. The net purchase cost is the initial cost minus resale value: $250,000 - $180,000 = $70,000. The difference shows renting costs $11,000 more than buying ($81,000 - $70,000 = $11,000).
Why the Other Options Are Wrong
Option A: Buying costs $7,000 more
This option has the correct direction (renting costs more) but uses the wrong dollar amount of $7,000 instead of the correct $11,000 difference.
Option B: Renting costs $7,000 more
This option incorrectly states that buying costs more than renting, when the calculation clearly shows renting is more expensive. It also has the wrong dollar amount comparison.
Memory Technique
Remember 'NET vs RENT' - always subtract resale value to get NET purchase cost before comparing to total RENT payments
Reference Hint
Construction cost estimating and equipment management chapters in contractor reference materials
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