Differential Analysis for a Lease or Buy Decision Laredo Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $120,000. The freight and installation costs for the equipment are $1,500. If purchased, annual repairs and maintenance are estimated to be $2,200 per year over the six-year useful life of the equipment. Alternatively, Laredo Corporation can lease the equipment from a domestic supplier for $25,000 per year for six years, with no additional costs.
Prepare a differential analysis dated March 15 to determine whether Laredo Corporation 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 (Alt. 1) or Buy (Alt. 2) Equipment
March 15
Lease
Equipment
(Alternative 1)Buy
Equipment
(Alternative 2)Differential
Effects
(Alternative 2)
Costs:
Purchase price$$$
Freight and installation
Repair and maintenance (6 years)
Lease (6 years)
Total costs$$$