Differential Analysis for a Lease or Buy Decision Sloan Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,100. The freight and installation costs for the equipment are $600. If purchased, annual repairs and maintenance are estimated to be $420 per year over the four-year useful life of the equipment. Alternatively, Sloan can lease the equipment from a domestic supplier for $1,360 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. Differential Analysis Lease Equipment (Alt. 1) or Buy Equipment (Alt. 2) December 3 Lease Equipment Buy Equipment Differential Effect on Income (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs: Purchase price Freight and installation Repair and maintenance (4 years) Lease (4 years) Income (loss) Determine whether Sloan should lease (Alternative 1) or buy (Alternative 2) the equipment.
Differential Analysis for a Lease or Buy Decision Sloan Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,100. The freight and installation costs for the equipment are $600. If purchased, annual repairs and maintenance are estimated to be $420 per year over the four-year useful life of the equipment. Alternatively, Sloan can lease the equipment from a domestic supplier for $1,360 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. Differential Analysis Lease Equipment (Alt. 1) or Buy Equipment (Alt. 2) December 3 Lease Equipment Buy Equipment Differential Effect on Income (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs: Purchase price Freight and installation Repair and maintenance (4 years) Lease (4 years) Income (loss) Determine whether Sloan should lease (Alternative 1) or buy (Alternative 2) the equipment.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Differential Analysis for a Lease or Buy Decision
Transcribed Image Text:Differential Analysis for a Lease or Buy Decision
Sloan Corporation is considering new equipment. The equipment can be purchased from an overseas
supplier for $3,100. The freight and installation costs for the equipment are $600. If purchased, annual
repairs and maintenance are estimated to be $420 per year over the four-year useful life of the
equipment. Alternatively, Sloan can lease the equipment from a domestic supplier for $1,360 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.
Differential Analysis
Lease Equipment (Alt. 1) or Buy Equipment (Alt. 2)
December 3
Lease Equipment
Buy Equipment
Differential Effect on Income
(Alternative 1)
(Alternative 2)
(Alternative 2)
Revenues
$4
Costs:
Purchase price
Freight and
installation
Repair and
maintenance (4
years)
Lease (4 years)
Income (loss)
$
Determine whether Sloan should lease (Alternative 1) or buy (Alternative 2) the equipment.
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