CHECK ANSWER

Topic 6 Assignment eBook Show Me How Differential Analysis for a Lease-or-buy Decision Moffett Industries is considering new equipment. The equipment can be purchased from an overseas supplier for $550,000. The freight and installation costs for the equipment are $15,000. If purchased, annual repairs and maintenance are estimated to be $8,000 per year over the 6-year useful life of the equipment. Alternatively, Moffett Industries can lease the equipment from a domestic supplier for $95,000 per year for 6 years, with no additional costs. a. Prepare a differential analysis dated February 12 to determine whether Moffett Industries 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 February 12 Lease Buy Differential Line Item Description Equipment Equipment Effects (Alternative 1) (Alternative 2) (Alternative 2) Costs: Purchase price 550,000 550,000 Freight and installation 15,000 5.000 Repair and maintenance (6 years) 48,000 48,000 Lease (6 years) 570,000 570,000 Total costs $70,000 613,000 43,000 b. Determine whether Moffett should lease (Alternative 1) or buy (Alternative 2) the equipment. Lease the equipment