Differential analysis for a lease$-$or$-$buy decision

Moffett Industries is considering new equipment. The equipment can be purchased from an overseas supplier for $$3,000.$ The freight and installation costs for the equipment are $$620.$ If purchased, annual repairs and maintenance are estimated to be $$410$ per year over the $4-$year useful life of the equipment. Alternatively, Moffett Industries can lease the equipment from a domestic supplier for $$1,560$ per year for $4$ 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 $12$

$\backslash$table$[[$Line Item Description,Lease,Buy,Differential$],[$Costs:$,($Alternative $1),($Alternative $2),($Alternative $2)]]$

Purchase price

Freight and installation

Repair and maintenance $(4$ years$)$

$ $$ $ $$

$$

$$

$$

$$

$$

$$

$$

Lease $(4$ years$)$

$$

$$

Total costs $$

$$

$$

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Theck My Work

Compare the lease costs for $4$ years with the buying costs for $4$ years $($purchase price, freight and installation, and repair and maintenance$).$ Determine the differential effect of the costs by subtracting alternative $1$ from alternative $2.$

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