Question
Sloan Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $125,500. The freight and installation costs for the equipment
Sloan Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $125,500. The freight and installation costs for the equipment are $1,600. If purchased, annual repairs and maintenance are estimated to be $2,500 per year over the five-year useful life of the equipment. Alternatively, Sloan can lease the equipment from a domestic supplier for $30,000 per year for five years, with no additional costs.
Prepare a differential analysis dated December 3 to determine whether Sloan should lease (Alternative 1) or purchase (Alternative 2) the equipment. 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". Use a minus sign to indicate a loss.
Differential Analysis | |||
Lease Equipment (Alt. 1) or Buy Equipment (Alt. 2) | |||
December 3 | |||
Lease Equipment (Alternative 1) | Buy Equipment (Alternative 2) | Differential Effect on Income (Alternative 2) | |
Revenues | $ | $ | $ |
Costs: | |||
Purchase price | $ | $ | $ |
Freight and installation | |||
Repair and maintenance (5 years) | |||
Lease (5 years) | |||
Income (loss) | $ | $ | $ |
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