Differential Analysis for a Lease$-$or$-$buy Decision

Moffett Industries is considering new equipment. The equipment can be purchased from an overseas supplier for $$550,000.$ The freight and installation costs for the equipment are $$15,000.$ If purchased, annual repairs and maintenance are estimated to be $$8,000$ per year over the $6-$year useful life of the equipment. Alternatively, Moffett Industries can lease the equipment from a domestic supplier for $$95,000$ per year for $6$ years, with no additional costs.

a$.$ Prepare a differential analysis dated February $12$ to determine whether Moffett Industries 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

February $12$

Line Item Description

Costs:

Purchase price

Freight and installation

Repair and maintenance $(6$ years$)$

Lease $(6$ years$)$

Total costs

$

$$ $ $($Alternative $1)($Alternative $2)($Alternative $2)$

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