Differential Analysis for a Lease or Buy Decision

Gilroy Corporation is considering new machine. The machine can be purchased from an overseas supplier for $3,040. The freight and installation costs for the machine are $620. If purchased, annual repairs and maintenance are estimated to be $390 per year over the four-year useful life of the machine. Alternatively, Gilroy can lease the machine from a domestic supplier for $1,500 per year for four years, with no additional costs.

Prepare a differential analysis dated October 3, to determine whether Gilroy should lease (Alternative 1) or purchase (Alternative 2) the machine. (Hint: This is a "lease or buy" decision, which must be analyzed from the perspective of the machine user, as opposed to the machine owner.) If an amount is zero, enter zero "0".

Differential Analysis
Lease Machine (Alt. 1) or Buy Machine (Alt. 2)
October 3
	Lease Machine (Alternative 1)	Buy Machine (Alternative 2)	Differential Effect on Income (Alternative 2)
Selling Price	$0	$0	$0
Costs:
Purchase price	$	$	$
Freight and installation
Repair and maintenance (4 years)
Lease (4 years)
Income (Loss)	$	$	$

Determine whether Gilroy should lease (Alternative 1) or buy (Alternative 2) the machine.