question 2

Submitted by dipti1pmp on Wed, 09/03/2014 - 05:55

ABC builder is approached by construction company to manage their contracting. They have a choice to either buy an excavator or take it on rent. The company would have to pay $ 1,30,000 and it shall incur maintenance cost of $10,000 per year. The price to rent the excavator is $5,000 per month, with one time service charge of $2,000. The project timelines is estimated to be 2 years. Resale value of Excavator shall be $50,000. Should company buy or rent it out?

Note: Give explanation

A. Buy
B. Rent
C. Take strategic decision
D. Look for alternative

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Namita Gupta

Wed, 09/03/2014 - 10:15

Renting will incur below cost
2000+(5000*24) = 120,000+2000 = 1,22,000
Buying
1,30,000+(2*10,000)-50,000 = 1,00,000

So here if Buy we can save 22,000