1. Badonsky Manufacturing needs to obtain a gear-cutting machine, which can be purchased for $75,000. Badonsky estimates that repair, maintenance, insurance, and property tax expense will be $20,000 for the machine's 5-year life. At the end of the machine's life, it will have no salvage value. As an alternative, Badonsky can lease the machine for 5 years for $18,000 per year. If the machine is leased, Badonsky is required to pay only for routine maintenance on the machine, which is estimated to be $8,000 over the machine's life. All other costs will be paid by the lessor. Prepare a differential analysis to determine whether Badonsky should purchase or lease the machine. My teacher is A STICKLER for showing ALL work and steps. It's only extra credit, but there are no examples in our book that I can find!

ACCOUNTING 212 Winter, 2012 Extra Credit (15 points) Badonsky Manufacturing needs to obtain a gear-cutting machine, which can be purchased for $75,000. Badonsky estimates that repair, maintenance, insurance, and property tax expense will be $20,000 for the machine's five-year life. At the end of the machine's life, it will have no salvage value. As an alternative, Badonsky can lease the machine for five years for $18,000 per year. If the machine is leased, Badonsky is required to pay only for routine maintenance on the machine, which is estimated to be $8,000 over the machine's life. All other costs will be paid by the lessor. 1. Prepare a differential analysis as discussed in Chapter 25 to determine whether Badonsky should purchase or lease the machine. 2. Using the present value charts discussed in Chapter 26, prepare a differential analysis using present value dollars in comparing the purchase versus lease alternatives to determine the best option. (Assume a 6% rate of return.) Which alternative should be chosen based on this analysis? Hints: Under the purchase alternative: 1. When will the funds be paid to purchase the equipment? Is the purchase price already stated in \"present value\" dollars? 2. When will the funds be paid to pay for the expenses? How can you state those costs in present value terms? Under the lease alternative: 1. When will the payments for the lease and maintenance costs be paid? How can you state those cash outflows in present value terms? 3. Do you come up with the same conclusion using the two different analyses? If not, which calculation do you feel is the more accurate calculation and why? (Don't over think this project. It's not meant to be a complex analysis.)