Carr Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,900. The freight and installation costs for the equipment are $515. If purchased, annual repairs and maintenance are estimated to be $410 per year over the four-year useful life of the equipment. Alternatively, Carr can lease the equipment from a domestic supplier for $1,750 per year for four years, with no additional costs.

Required:

A.

Prepare a differential analysis dated August 4 to determine whether Carr should lease (Alternative 1) or purchase (Alternative 2) the equipment. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required. (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.)

B.

Determine whether the Carr should lease (Alternative 1) or purchase (Alternative 2) the equipment.

Labels

Cash flows from operating activities

Costs

Amount Descriptions

Freight and installation

Import tariff

Income (loss)

Lease (4 years)

Purchase price

Repair and maintenance (4 years)

A. Prepare a differential analysis dated August 4 to determine whether Carr should lease (Alternative 1) or purchase (Alternative 2) the equipment. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtractive or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.

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.

Differential Analysis

Lease Equipment (Alternative 1) or Buy Equipment (Alternative 2)

August 4

1		Lease Equipment	Buy Equipment	Differential Effect on Income
2		(Alternative 1)	(Alternative 2)	(Alternative 2)
3
4
5
6
7
8				B. Determine whether the Carr should lease (Alternative 1) or purchase (Alternative 2) the equipment. Lease the equipment The company is indifferent since the result is the same regardless of which alternative is chosen Buy the equipment