Differential Analysis for a Lease or Buy Decision

Laredo Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,280. The freight and installation costs for the equipment are $620. If purchased, annual repairs and maintenance are estimated to be $390 per year over the four-year useful life of the equipment. Alternatively, Laredo Corporation can lease the equipment from a domestic supplier for $1,500 per year for four years, with no additional costs.

Question Content Area

Prepare a differential analysis dated March 15 to determine whether Laredo Corporation 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 March 15

	Lease Equipment (Alternative 1)	Buy Equipment (Alternative 2)	Differential Effects (Alternative 2)
Costs:
Purchase price	$fill in the blank a72b1b07ffed036_1	$fill in the blank a72b1b07ffed036_2	$fill in the blank a72b1b07ffed036_3
Freight and installation	fill in the blank a72b1b07ffed036_4	fill in the blank a72b1b07ffed036_5	fill in the blank a72b1b07ffed036_6
Repair and maintenance (4 years)	fill in the blank a72b1b07ffed036_7	fill in the blank a72b1b07ffed036_8	fill in the blank a72b1b07ffed036_9
Lease (4 years)	fill in the blank a72b1b07ffed036_10	fill in the blank a72b1b07ffed036_11	fill in the blank a72b1b07ffed036_12
Total costs	$fill in the blank a72b1b07ffed036_13	$fill in the blank a72b1b07ffed036_14	$fill in the blank a72b1b07ffed036_15

Question Content Area

Determine whether Laredo should lease (Alternative 1) or buy (Alternative 2) the equipment.

Lease the equipmentBuy the equipment