Question
The Rebel Inn needs to purchase new laundry equipment. John Robinson, the new owner, is faced with the following two alternatives (assume that the laundry
The Rebel Inn needs to purchase new laundry equipment. John Robinson, the new owner, is faced with the following two alternatives (assume that the laundry equipment has a three year life, and ignore the time value of money):
Buy Lease
Cost of equipment $20,000 ---
Semi-annual equipment rental --- $3,000
Salvage value in three years $4,000 ---
Annual costs:
Labor $15,000 $15,000
Supplies 1,000 1,000
Utilities 2,000 3,000
Interest Expense 1,500 ---
Repairs 300 ---
A. Which of the costs shown above are irrelevant?
B. Calculate the total cost of the Buy alternative over 3 years
C. Calculate the total cost of the Lease alternative over 3 years:
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Modern Auditing
Authors: Guadarshan S. Gill, Cosserat Graham, Leung Philomena, Coram Paul
5th Edition
0471340723, 978-0471340720
