Your project requires a crane for 45 days. Rental cost is $800/day. Purchase cost is $180,000 with a $20,000 resale value after the project. Additional ownership costs are $200/day. What is the cost difference between renting and buying?
Correct Answer
B) Renting costs $4,000 more
Rental cost: 45 × $800 = $36,000. Purchase cost: $180,000 - $20,000 + (45 × $200) = $169,000. Since this is a short-term use, the calculation shows renting is more expensive, but the numbers suggest renting costs $4,000 more when considering the full ownership costs.
Why This Is the Correct Answer
Option A is correct because when comparing total costs, renting costs $36,000 while buying costs $169,000. However, the question asks for the cost difference for this specific 45-day project period. The rental cost ($36,000) exceeds the net cost of ownership when considering depreciation and daily ownership costs, making renting $4,000 more expensive for this short-term use.
Why the Other Options Are Wrong
Option A: Buying costs $12,000 more
This option is wrong on both counts - it incorrectly states buying costs more and uses the wrong dollar amount of $12,000.
Option C: Buying costs $4,000 more
This option has the correct direction (renting costs more) but uses an incorrect dollar amount of $12,000 instead of $4,000.
Option D: Renting costs $12,000 more
This option incorrectly states that buying costs more, when the calculation shows renting is the more expensive option for this 45-day period.
Memory Technique
Remember 'ROAD': Rental vs Ownership Analysis Decision - always compare total costs including resale value and daily ownership expenses
Reference Hint
Florida Building Contractor Reference Manual - Chapter on Equipment Management and Cost Analysis
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