Assume you have been asked to create a spreadsheet to help make a buy-versus-lease decision for the servers on your organization’s Web farm.

Assume that you are considering the servers for a 5-year period, but you do not know exactly how many servers you will need. Initially, you know you will need 5 servers, but you might need as many as 50, depending on the success of your organization’s e-commerce activity.

a. For the buy-alternative calculations, set up your spreadsheet so that you can enter the base price of the server hardware, the price of all software, and a maintenance expense that is some percentage of the hardware price.

Assume that the percent you enter covers both hardware and software maintenance.

Also assume that each server has a 3-year life, after which it has no value. Assume straightline depreciation for computers used fewer than 3 years, and that at the end of the 5 years you can sell the computers you have used for fewer than 3 years for their depreciated value.

Also assume that your organization pays 2 percent interest on capital expenses. Assume the servers cost $5,000 each, and the needed software costs $750. Assume that the maintenance expense varies from 2 to 7 percent.

b. For the lease-alternative calculations, assume that the leasing vendor will lease the same computer hardware as you can purchase. The lease includes all the software you need as well as all maintenance. Set up your spreadsheet so that you can enter various lease costs, which vary according to the number of years of the lease (1, 2, or 3). Assume the cost of a 3-year lease is $285 per machine per month, a 2-year lease is $335 per machine per month, and a 1-year lease is

$415 per machine per month. Also, the lessor offers a 5 percent discount if you lease from 20 to 30 computers and a 10 percent discount if you lease from 31 to 50 computers.

c. Using your spreadsheet, compare the costs of buy versus lease under the following situations.

(Assume you either buy or lease. You cannot lease some and buy some.) Make assumptions as necessary and state those assumptions.

(1) Your organization requires 20 servers for 5 years.

(2) Your organization requires 20 servers for the first 2 years and 40 servers for the next 3 years.

(3) Your organization requires 20 servers for the first 2 years, 40 servers for the next 2 years, and 50 servers for the last year.

(4) Your organization requires 10 servers the first year, 20 servers the second year, 30 servers the third year, 40 servers the fourth year, and 50 servers the last year.

(5) For the previous case, does the cheaper alternative change if the cost of the servers is $4,000? If it is $8,000?