Lease or Sell

Felix Company owns equipment with a cost of $362,700 and accumulated depreciation of $56,800 that can be sold for $275,200, less a 5% sales commission. Alternatively, Felix Company can lease the equipment for three years for a total of $286,100, 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 equipment would total $16,700 over the three year lease.

a. Prepare a differential analysis on February 18, as to whether Felix Company should lease (Alternative 1) or sell (Alternative 2) the equipment.

Differential Analysis
Lease (Alt. 1) or Sell (Alt. 2) Equipment
February 18
	Lease Equipment (Alternative 1)	Sell Equipment (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$	$	$
Costs
Income (Loss)	$	$	$

b. Should Felix Company lease (Alternative 1) or sell (Alternative 2) the equipment?