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

Moffett Industries is considering new equipment. The equipment can be purchased from an overseas supplier for $$3,160.$ The freight and installation costs for the equipment are $$640.$ If purchased, annual repairs and maintenance are estimated to be $$390$ per year over the $4$ year useful life of the equipment. Alternatively, Moffett Industries can lease the equipment from a domestic supplier for $$1,600$ per year for $4$ 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 $(4$ years$)$

Lease $(4$ years$)$

Total costs