Differential Analysis for a Lease-or-Buy Decision

Pompeo Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $95,000. The freight and installation costs for the equipment are $4,500. If purchased, annual repairs and maintenance are estimated to be $3,600 per year over the 4-year useful life of the equipment. Alternatively, Pompeo can lease the equipment from a domestic supplier for $29,200 per year for 4 years, with no additional costs.

Question Content Area

Prepare a differential analysis dated December 11 to determine whether Pompeo should Lease Equipment (Alternative 1) or Buy Equipment (Alternative 2). 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". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis Lease Equipment (Alt. 1) or Buy Equipment (Alt. 2) December 11

	Lease Equipment (Alternative 1)	Buy Equipment (Alternative 2)	Differential Effects (Alternative 2)
Unit costs:
Purchase price	$fill in the blank b8c4f2f8603c01c_1	$fill in the blank b8c4f2f8603c01c_2	$fill in the blank b8c4f2f8603c01c_3
Freight and installation	fill in the blank b8c4f2f8603c01c_4	fill in the blank b8c4f2f8603c01c_5	fill in the blank b8c4f2f8603c01c_6
Repair and maintenance (4 years)	fill in the blank b8c4f2f8603c01c_7	fill in the blank b8c4f2f8603c01c_8	fill in the blank b8c4f2f8603c01c_9
Lease (4 years)	fill in the blank b8c4f2f8603c01c_10	fill in the blank b8c4f2f8603c01c_11	fill in the blank b8c4f2f8603c01c_12
Total unit costs	$fill in the blank b8c4f2f8603c01c_13	$fill in the blank b8c4f2f8603c01c_14	$fill in the blank b8c4f2f8603c01c_15