Question

# Lease or Sell Casper Company owns equipment with a cost of \$361,900 and accumulated depreciation of...

Lease or Sell

Casper Company owns equipment with a cost of \$361,900 and accumulated depreciation of \$56,800 that can be sold for \$273,000, less a 4% sales commission. Alternatively, Casper Company can lease the equipment for three years for a total of \$285,400, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Casper Company on the equipment would total \$16,600 over the three year lease.

a. Prepare a differential analysis on February 18, as to whether Casper Company should lease (Alternative 1) or sell (Alternative 2) the equipment.

 Differential Analysis Lease (Alt. 1) or Sell (Alt. 2) Equipment February 18 Lease Equipment (Alternative 1) Sell Equipment (Alternative 2) Differential Effect on Income (Alternative 2) Revenues \$ \$ \$ Costs Income (Loss) \$ \$ \$

b. Should Casper Company lease (Alternative 1) or sell (Alternative 2) the equipment?

 a Differential Analysis Lease (Alt. 1) or Sell (Alt. 2) Equipment February 18 Lease Equipment Sell Equipment Differential Effect (Alternative 1) (Alternative 2) on Income (Alternative 2) Revenues 285400 273000 -12400 Costs -16600 -10920 5680 Income (Loss) 268800 262080 -6720 b Lease (Alternative 1) the Equipment Workings: Commission 10920 =273000*4%

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