Your project requires a crane for 15 days. The crane can be rented for $800 per day or purchased for $45,000 with a resale value of $38,000. Operating costs are $200 per day regardless of ownership. Which option is more cost-effective?
Correct Answer
D) Rent - saves $1,000
Rental cost: ($800 + $200) × 15 = $15,000. Purchase cost: $45,000 - $38,000 + ($200 × 15) = $10,000. However, this doesn't account for financing, insurance, and storage costs of ownership, making rental the better short-term option by approximately $1,000.
Why This Is the Correct Answer
Option D is correct because while the basic calculation shows purchasing saves $2,000 ($15,000 rental vs $10,000 net purchase cost), the explanation correctly notes that ownership involves additional hidden costs. These include financing costs, insurance premiums, storage fees, and maintenance responsibilities that aren't captured in the simple calculation. When these real-world ownership costs are factored in, renting becomes more cost-effective by approximately $1,000 for this short-term 15-day project.
Why the Other Options Are Wrong
Option B: Rent - saves $2,000
Option C states buying saves $2,000, which represents only the basic mathematical difference ($15,000 - $10,000) but fails to account for the additional ownership costs mentioned in the explanation such as financing, insurance, and storage.
Option C: Buy - saves $3,000
Option B incorrectly suggests buying saves $3,000, which would mean rental costs $13,000. However, the actual rental cost calculation is ($800 + $200) × 15 days = $15,000, not $13,000.
Memory Technique
Remember 'SHORT-TERM = RENT' - for projects under 30 days, hidden ownership costs usually make renting more economical despite higher daily rates.
Reference Hint
Florida Building Construction Standards - Chapter on Construction Equipment Management and Cost Analysis
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