Differential Analysis for a Lease-or-Buy Decision Urban Styles Corporation is considering new equipment. The equipment...
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Differential Analysis for a Lease-or-Buy Decision
Urban Styles Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,140. The freight and installation costs for the equipment are $620. If purchased, annual repairs and maintenance are estimated to be $420 per year over the four-year useful life of the equipment. Alternatively, Urban Styles can lease the equipment from a domestic supplier for $1,440 per year for four years, with no additional costs.
Prepare a differential analysis dated December 11 to determine whether Urban Styles 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".
Differential Analysis
Lease Machine (Alt. 1) or Buy Machine (Alt. 2)
December 11
Lease Machine (Alternative 1)
Buy Machine (Alternative 2)
Differential Effect on Income (Alternative 2)
Revenues
$0
$0
$0
Costs:
Purchase price
$
$
$
Freight and installation
Repair and maintenance (4 years)
Lease (4 years)
Income (Loss)
$
$
$
Answer & Explanation
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