Differential Analysis for a Lease or Buy Decision
Sloan Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,020. The freight and installation costs for the equipment are $660. If purchased, annual repairs and maintenance are estimated to be $400 per year over the four-year useful life of the equipment. Alternatively, Sloan can lease the equipment from a domestic supplier for $1,460 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) | $ | $ | $ |
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 | 0 | 0 | 0 |
Costs: | |||
Purchase price | 0 | -3020 | -3020 |
Freight and installation | 0 | -660 | -660 |
Repair and maintenance (4 years) | 0 | -1600 | -1600 |
Lease (4 years) | -5840 | 0 | 5840 |
Income (loss) | -5840 | -5280 | 560 |
Decision : Equipment can buy |
Differential Analysis for a Lease or Buy Decision Sloan Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,020. The freight and installation cost...
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Differential Analysis for a Lease or Buy Decision Differential Analysis for a Lease or Buy Decision Sloan Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,100. The freight and installation costs for the equipment are丰650. If purchased, annual repairs and maintenance are estimated to be丰430 per year over the four-year useful life of the equipment. Alternatively, Sloan can lease the equipment from a domestic supplier for $1,440 per year for four years, with...
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