Lease or Sell

Felix Company owns a machine with a cost of $367,100 and accumulated depreciation of $54,000 that can be sold for $277,900, less a 4% sales commission. Alternatively, the machine can be leased by Felix Company for three years for a total of $285,700, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Felix Company on the machine would total $16,800 over the three years.

Hide

Prepare a differential analysis on January 12, 2014, as to whether Felix Company should lease (Alternative 1) or sell (Alternative 2) the machine.

Differential Analysis
Lease Machine (Alt. 1) or Sell Machine (Alt. 2)
January 12, 2014
		Lease Machine (Alternative 1)		Sell Machine (Alternative 2)		Differential Effect on Income (Alternative 2)
Revenues		$ Correct 8 of Item 1		$ Correct 9 of Item 1		$ Correct 10 of Item 1
Costs		Correct 12 of Item 1		Correct 13 of Item 1		Correct 14 of Item 1
Income (Loss)		$ Correct 16 of Item 1		$ Correct 17 of Item 1		$ Correct 18 of Item 1

Should Felix Company lease (Alternative 1) or sell (Alternative 2) the machine? SelectLease the machineSell the machineCorrect 1 of Item 2