Differential Analysis for a Lease or Buy Decision
Sloan 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 $620. If purchased, annual repairs and maintenance are estimated to be $380 per year over the four-year useful life of the equipment. Alternatively, Sloan can lease the equipment from a domestic supplier for $1,600 per year for four years, with no additional costs.
Prepare a differential analysis dated December 3, to determine whether Sloan should lease (Alternative 1) or purchase (Alternative 2) the machine. (Hint: This is a "lease or buy" decision, which must be analyzed from the perspective of the machine user, as opposed to the machine owner.) If an amount is zero, enter "0". Use a minus sign to indicate a loss.
Differential Analysis | |||
Lease Equipment (Alt. 1) or Buy Equipment (Alt. 2) | |||
December 3 | |||
Lease Equipment (Alternative 1) | Buy Equipment (Alternative 2) | Differential Effect on Income (Alternative 2) | |
Revenues | $ | $ | $ |
Costs: | |||
Purchase price | $ | $ | $ |
Freight and installation | |||
Repair and maintenance (4 years) | |||
Lease (4 years) | |||
Income (loss) | $ | $ | $ |
Determine whether Sloan should lease (Alternative 1) or buy
(Alternative 2) the equipment.
Sloan should buy the equipment as the loss in buying is less than in leasing it.
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Differential Analysis for a Lease or Buy Decision Sloan Corporation is considering new equipment. The equipment...
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