Question

Carr Corporation is considering new equipment. The equipment canbe purchased from an overseas supplier for $3,900. The freight andinstallation costs for the equipment are $515. If purchased, annualrepairs and maintenance are estimated to be $410 per year over thefour-year useful life of the equipment. Alternatively, Car canlease the equipment from a domestic supplier for $1,750 per yearfor four years, with no additional costs. Prepare a differentialanalysis dated August 4 to determine whether Carr should lease(Alternative 1) or purchase (Alternative 2) the equipment. Hint:This is a “lease or buy” decision, which must be analyzed from theperspective of the equipment user, as opposed to the equipmentowner.