A construction company is comparing the cost of buying two different cranes. Crane A will initially cost $500 000, will require servicing of $12500 per year (no servicing is required at time 0), and will last 20 years. Crane B will initially cost $350 000, will require servicing of $18000 per year (no servicing is required at time 0), and will last 25 years. If the cost of capital is 7%, which crane should the construction company purchase, given that it has an ongoing requirement for a crane?

Answer rating: 100% (QA)

To compare the costs of the two cranes we will use the present value formula to account for the time ... View the full answer