1. Should Warf buy or lease the equipment? Warf Computers has decided to proceed with the manufacture and distribution of the virtual keyboard (VK) the company has developed. To undertake this venture, the company needs to obtain equipment for the production of the microphone for the keyboard. Because of the required sensitivity of the microphone and its small size, the company needs specialised equipment for production.

Nick Warf, the company president, has found a vendor for the equipment.

Clapton Acoustical Equipment has offered to sell Warf Computers the necessary equipment at a price of $6.1 million. Because of the rapid development of new technology, the equipment falls in the three-year depreciation. At the end of four years, the market value of the equipment is expected to be $780 000.