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 4 year construction project. The contractor uses an MARR of 8%. The crane costs $500,000 and can be sold for $350,000 after 4 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 incremental benefit-cost ratio that the contractor should use to decide between buying and renting. Express your answer to two decimal places.

Answer is 0.91, just need the work shown.

Explanation / Answer

If crane is bought = Incremntal cost = 500,000

Incremental benefit = 310000 - 250000 = 60000

Present value of incrmental benefot = (PVAF@8%,4 *Annual benefit)+(PVF@8%,4* Salvage)

                   =(3.31213 * 60000 ) +    (.73503 * 350000)

                    = 198727.61+ 257260.5

                     = 455988.11

Benefit to cost ratio = 455988.11 /500000 = .91

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