Question
Darrow Co. is considering disposing of equipment that cost $50,000 and has $40,000 accumulated depreciation to date. Darrow can sell the equipment through a broker
Darrow Co. is considering disposing of equipment that cost $50,000 and has $40,000 accumulated depreciation to date. Darrow can sell the equipment through a broker for $25,000 less a 5% commission. Alternatively, Minton Co. has offered to lease the equipment from Darrow for five years for lease payments totaling $48,750. During the term of the lease, Darrow will incur repair, insurance, and property taxes on the equipment estimated to total $10,000. At the end of the lease, the equipment is expected to have no residual value. Ignoring the time value of money, the best decision is to:
A. | lease at a net advantage of $13,750 | |
B. | lease at a net advantage of $15,000 | |
C. | sell at a net advantage of $13,750 | |
D. | sell at a net advantage of $15,000 |
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