Laredo Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,060. The freight and installation costs for the equipment are $610. If purchased, annual repairs and maintenance are estimated to be $390 per year over the four-year useful life of the equipment. Alternatively, Laredo Corporation can lease the equipment from a domestic supplier for $1,520 per year for four years, with no additional costs.
Prepare a differential analysis dated March 15 to determine whether Laredo Corporation should lease (Alternative 1) or purchase (Alternative 2) the equipment. (Hint: This is a “lease or buy” decision, which must be analyzed from the perspective of the equipment user, as opposed to the equipment owner.) If an amount is zero, enter "0".
Differential Analysis | |||
Lease (Alt. 1) or Buy (Alt. 2) Equipment | |||
March 15 | |||
Lease Equipment (Alternative 1) |
Buy Equipment (Alternative 2) |
Differential Effects (Alternative 2) |
|
Costs: | |||
Purchase price | $ | $ | $ |
Freight and installation | |||
Repair and maintenance (4 years) | |||
Lease (4 years) | |||
Total costs | $ | $ | $ |
Differential Analysis | |||
Lease (Alt. 1) or Buy (Alt. 2) Equipment | |||
March 15 | |||
Lease | Buy | Differential | |
Equipment | Equipment | Effects | |
(Alternative 1) | (Alternative 2) | (Alternative 2) | |
Costs: | |||
Purchase price | 0 | -3060 | -3060 |
Freight and installation | 0 | -610 | -610 |
Repair and maintenance (4 years) | 0 | -1560 | -1560 |
Lease (4 years) | -6080 | 0 | 6080 |
Total costs | -6080 | -5230 | 850 |
Laredo Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for...
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