Lease or Sell

Assume a company has equipment with a book value of $$100,000($cost of $$140K$ less $\frac{A}{D}$ of $$40K).$ The

Company can sell the equipment through a broker for $$90,000$ less a $10\%$ commission fee. Alternatively,

the Company could lease the equipment to another party for $7$ years at a price of $$200,000.$ At the end

of the seven years, the equipment is expected to have no residual value $($book value of $$0).$ If the

equipment is leased, the Company will incur estimated expenses of $$5,000$ every year for the next

seven years for maintenance, insurance and taxes.

Should the company lease or sell and why?

Special Offer

Assume Easy Off Oven Company has excess capacity. The cost to make an oven is $$1,000(600$ fixed

and $$400$ variable$).$ The ovens can be sold for $$2,000.$ XYZ Company offers to purchase $2,000$ ovens at a

price of $$500$ each. Should the company accept this offer and why?