Buy vs. Lease Equipment Decision Tree
Buy vs. Lease Equipment Decision Tree
Use the information in the table below to decide whether you want to lease versus buy new technology.
Calculate expected value of each outcome and show your calculations (Probability X Impact).
Explain the best option based on the outcome, and why.
The biggest concerns or risks with purchasing technology are the rapid changes that happen in technology and the low end-of-life value of technology. Therefore, there is a 40 percent chance that the leased equipment will have better contractual value at the end of the lease-period . Alternatively, there is an 85 percent chance that purchasing new technology will have a lower-than-expected value at the end of the project life. The cost for the technology, if leased, is $11,500, versus the cost of purchasing a new technology, which is $15,000.
Cost to buy a new technology-$15,000
Probability of having lower-than-expected value at the end of the project life.-85%
Probability of that the leased equipment will have better contractual value at the end of the lease-period.-40%
Cost of maintenance for the new equipment.-$5,000
Cost of maintenance for the leased equipment.-$2,500
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