Differential Analysis for a Lease-or-Buy Decision

Urban Styles Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,000. The freight and installation costs for the equipment are $650. If purchased, annual repairs and maintenance are estimated to be $400 per year over the 4-year useful life of the equipment. Alternatively, Urban Styles can lease the equipment from a domestic supplier for $1,600 per year for 4 years, with no additional costs.

Question Content Area

Prepare a differential analysis dated December 11 to determine whether Urban Styles 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.

	Lease Equipment (Alternative 1)	Buy Equipment (Alternative 2)	Differential Effects (Alternative 2)
Unit costs:
Purchase price
Freight and installation
Repair and maintenance (4 years)
Lease (4 years)
Total unit costs

Question Content Area

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

Lease the equipment or Buy the equipment