Differential Analysis for a Lease or Buy Decision
Sloan Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,260. The freight and installation costs for the equipment are $600. If purchased, annual repairs and maintenance are estimated to be $410 per year over the four-year useful life of the equipment. Alternatively, Sloan can lease the equipment from a domestic supplier for $1,540 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.
|Lease Equipment (Alt. 1) or Buy Equipment (Alt. 2)|
|Lease Equipment (Alternative 1)||Buy Equipment (Alternative 2)||Differential Effect on Income (Alternative 2)|
|Freight and installation|
|Repair and maintenance (4 years)|
|Lease (4 years)|
Determine whether Sloan should lease (Alternative 1) or buy
(Alternative 2) the equipment.
Buy the equipment
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