Differential Analysis for a Lease or Buy Decision Sloan 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 $610. If purchased, annual repairs and maintenance are estimated to be $420 per year over the four-year useful life of the equipment. Alternatively, Sloan can lease the equipment from a domestic supplier for $1,400 per year for four years, with no additional costs Prepare a differential analysis dated December 3, to determine whether Sloan 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 "O". Use a minus sign to indicate a loss. Differential Analysis Lease Equipment (Alt. 1) or Buy Equipment (Alt. 2) December 3 Lease Equipment (Alternative 1) Buy Equipment (Alternative 2) Differential Effect on Income (Alternative 2) Revenues Costs Purchase price Freight and installation Repair and maintenance (4 years) Lease (4 years) 3,280 610 1,680 5,600 Income (Loss) 5,600 5,570 -170 Determine whether Sloan should lease (Alternative 1) or buy (Alternative 2) the equipment. Buy the equipment Feedback Check My Work Compare the lease costs for 4 years with the buying costs for 4 years (purchase price, freight, and maintenance). Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 2 from alternative 1. Learning Objective 1. Differential Analysis for a Lease or Buy Decision Sloan 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 $610. If purchased, annual repairs and maintenance are estimated to be $420 per year over the four-year useful life of the equipment. Alternatively, Sloan can lease the equipment from a domestic supplier for $1,400 per year for four years, with no additional costs Prepare a differential analysis dated December 3, to determine whether Sloan 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 "O". Use a minus sign to indicate a loss. Differential Analysis Lease Equipment (Alt. 1) or Buy Equipment (Alt. 2) December 3 Lease Equipment (Alternative 1) Buy Equipment (Alternative 2) Differential Effect on Income (Alternative 2) Revenues Costs Purchase price Freight and installation Repair and maintenance (4 years) Lease (4 years) 3,280 610 1,680 5,600 Income (Loss) 5,600 5,570 -170 Determine whether Sloan should lease (Alternative 1) or buy (Alternative 2) the equipment. Buy the equipment Feedback Check My Work Compare the lease costs for 4 years with the buying costs for 4 years (purchase price, freight, and maintenance). Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 2 from alternative 1. Learning Objective 1
