Differential Analysis for a Lease-or-Buy Decision Gilroy Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,200. The freight and installation costs for the equipment are $650. If purchased, annual repairs and maintenance are estimated to be $430 per year over the 4-year useful life of the equipment. Alternatively, Gilroy can lease the equipment from a domestic supplier for $1,580 per year for 4 years, with no additional costs. Prepare a differential analysis dated December 11 to determine whether Gilroy should Lease Equipment (Alternative 1) or Buy Equipment (Alternative 2). Hint: This is a lease-or-buy decision, which must be analyzed from the perspective of the equipment user, as opposed to the equipment owner. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Lease Equipment (Alt. 1) or Buy Equipment (Alt. 2) December 11 Unit costs: Lease Equipment (Alternative 1) Buy Equipment (Alternative 2) Differential Effects (Alternative 2) Purchase price 0.00 Freight and installation -24 Repair and maintenance (4 years) -22 Lease (4 years) -3.52 Total unit costs Determine whether Gilroy should lease (Alternative 1) or buy (Alternative 2) the equipment. Feedback Check My Work Compare the lease costs for 4 years with the buying costs for 4 years (purchase price, freight, and maintenance). Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2.
Differential Analysis for a Lease-or-Buy Decision Gilroy Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,200. The freight and installation costs for the equipment are $650. If purchased, annual repairs and maintenance are estimated to be $430 per year over the 4-year useful life of the equipment. Alternatively, Gilroy can lease the equipment from a domestic supplier for $1,580 per year for 4 years, with no additional costs. Prepare a differential analysis dated December 11 to determine whether Gilroy should Lease Equipment (Alternative 1) or Buy Equipment (Alternative 2). Hint: This is a lease-or-buy decision, which must be analyzed from the perspective of the equipment user, as opposed to the equipment owner. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Lease Equipment (Alt. 1) or Buy Equipment (Alt. 2) December 11 Unit costs: Lease Equipment (Alternative 1) Buy Equipment (Alternative 2) Differential Effects (Alternative 2) Purchase price 0.00 Freight and installation -24 Repair and maintenance (4 years) -22 Lease (4 years) -3.52 Total unit costs Determine whether Gilroy should lease (Alternative 1) or buy (Alternative 2) the equipment. Feedback Check My Work Compare the lease costs for 4 years with the buying costs for 4 years (purchase price, freight, and maintenance). Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Differential Analysis for a Lease-or-Buy Decision
Gilroy Corporation is considering new equipment. The equipment can be purchased from an overseas
supplier for $3,200. The freight and installation costs for the equipment are $650. If purchased, annual
repairs and maintenance are estimated to be $430 per year over the 4-year useful life of the equipment.
Alternatively, Gilroy can lease the equipment from a domestic supplier for $1,580 per year for 4 years,
with no additional costs.
Prepare a differential analysis dated December 11 to determine whether Gilroy should Lease Equipment
(Alternative 1) or Buy Equipment (Alternative 2). Hint: This is a lease-or-buy decision, which must be
analyzed from the perspective of the equipment user, as opposed to the equipment owner. If an amount
is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus
sign.
Differential Analysis
Lease Equipment (Alt. 1) or Buy Equipment (Alt. 2)
December 11
Unit costs:
Lease Equipment
(Alternative 1)
Buy Equipment
(Alternative 2)
Differential Effects
(Alternative 2)
Purchase price
0.00
Freight and installation
-24
Repair and maintenance (4 years)
-22
Lease (4 years)
-3.52
Total unit costs
Determine whether Gilroy should lease (Alternative 1) or buy (Alternative 2) the equipment.
Feedback
Check My Work
Compare the lease costs for 4 years with the buying costs for 4 years (purchase price, freight, and
maintenance). Determine the differential effect on income of the revenues, costs, and income (loss)
by subtracting alternative 1 from alternative 2.
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