A contractor must choose between buying or renting a crane for the duration of a

Question

A contractor must choose between buying or renting a crane for the duration of a 5 year construction project. The contractor uses an MARR of 8%. The crane costs $540,000 and can be sold for $390,000 after 5 years. The cost to operate and maintain the crane is $250,000 per year. Renting the crane costs $310,000 per year including all operating and maintenance costs. Determine the future worth of costs (FWC) for the contractor's best option. Express your answer as a positive number is $ to the nearest $1,000.

Explanation / Answer

The annual equivalent of buying a crane (AE) = 540,000(A/P , 8%, 5) + 250,000 - 390,000(A/F, 8%, 5)

                                                                = 540,000(0.2505) + 250,000 - 390,000(0.1705)

                                                                = 135270 + 250,000 - 66495 = $318,775

Thus the contractor's best option is renting a crane, because the AE of renting is less than buy.

So, the Future Worth of renting is:

FW = 310,000(F/A, 8%, 5) = 310,000 * 5.867 = $18,187,79

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