Question

Blasco's wishes to obtain new assets that will reduce their operating costs by $3,800 a year on an after-tax basis. These assets can be either purchased or leased. Explain why these cost savings are omitted from the lease versus purchase analysis.

Answer 1

Blasco's wishes to obtain new assets that will reduce their operating costs by $3,800 a year on an after-tax basis. and these assets can be either purchased or leased.

The cost saving of operating cost will not be considered while evaluating the lease versus pruchase decision because the the cost saving of operating cost will be available in both the options, whether we purchase or take the asstes on lease. These cost savings are omitted from the lease versus purchase analysis because these saving will be availabe when the assets are obtain, and it is immaterial for the decision whether to buy or taken on lease