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%. At the end of the project, the crane can be sold for 21% of its initial cost. The cost to operate and maintain the crane is $210,000 per year. Renting the crane costs $330,000 per year including all operating and maintenance costs.

Determine the maximum amount the contractor should pay to purchase the crane (i.e. the breakeven initial cost of the crane).

Answer 1

Renting a crane + Maintenance = $330,000

Rent duration. = 5 years

Percentage. = 8%

330,000/ 100 x 8/ 1 x 5

= $132,000

Sold Crane 21% of initial cost

Initial cost =

330,000 x 100 x 21/1

330 x 21

= $6,930 + $132,000

To purchase the crane he pays

=$138,930