1

eBook Show Me How Differential Analysis for a Lease or Buy Decision Laredo Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,280. The freight and installation costs for the equipment are $600. If purchased, annual repairs and maintenance are estimated to be $380 per year over the four-year useful life of the equipment. Alternatively, Laredo Corporation can lease the equipment from a domestic supplier for $1,580 per year for four years, with no additional costs. Prepare a differential analysis dated March 15 to determine whether Laredo Corporation should lease (Alternative 1) or purchase (Alternative 2) the equipment. (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" Differential Analysis Lease (Alt. 1) or Buy (Alt. 2) Equipment March 15 Lease Buy Differential Equipment Equipment Effects (Alternative 1) (Alternative 2) (Alternative 2) Costs: Purchase price 3,180 3.10 Freight and installation Repair and maintenance (4 years) Lease (4 years) Total costs 0 0 Determine whether Laredo should use (Alternative 1) or buy (Alternative 2) the equipment Lease the equipment