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Differential Analysis for a Lease$-$or$-$buy Decision

Moffett Industries is considering new equipment. The equipment can be purchased from an overseas supplier for $$3,320.$ The freight and installation costs for the equipment are $$640.$ If purchased, annual repairs and maintenance are estimated to be $$390$ per year over the $4-$year useful life of the equipment. Alternatively, Moffett Industries can lease the equipment from a domestic supplier for $$1,500$ per year for $4$ years, with no additional costs.

Question Content Area

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 $12$

Line Item Description Lease

Equipment

$($Alternative $1)$ Buy

Equipment

$($Alternative $2)$ Differential

Effects

$($Alternative $2)$

Costs:

Purchase price $Purchase price

$Purchase price

$Purchase price

Freight and installation Freight and installation

Freight and installation

Freight and installation

Repair and maintenance $(4$ years$)$ Repair and maintenance $(4$ years$)$

Repair and maintenance $(4$ years$)$

Repair and maintenance $(4$ years$)$

Lease $(4$ years$)$ Lease $(4$ years$)$

Lease $(4$ years$)$

Lease $(4$ years$)$

Total costs $Total costs

$Total costs

$Total costs

Question Content Area

b$.$ Determine whether Moffett should lease $($Alternative $1)$ or buy $($Alternative $2)$ the equipment.