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11 Dec 2019

Urban Styles Corporation is considering new equipment. Theequipment can be purchased from an overseas supplier for $3,200.The freight and installation costs for the equipment are $640. Ifpurchased, annual repairs and maintenance are estimated to be $430per year over the four-year useful life of the machine.Alternatively, Urban Styles can lease the machine from a domesticsupplier for $1,400 per year for four years, with no additionalcosts.

Prepare a differential analysis dated October 3, 2012, todetermine whether Urban Styles should lease (Alternative 1) orpurchase (Alternative 2) the machine. (Hint: This is a "lease orbuy" decision, which must be analyzed from the perspective of theequipment user, as opposed to the equipment owner.) If an amount iszero, enter zero "0".


Differential Analysis

Lease Machine (Alt. 1) or Buy Machine (Alt. 2)

October 3, 2012

Lease Machine (Alternative 1)

Buy Machine (Alternative 2)

Differential Effect on Income (Alternative 2)

Costs:

Purchase price

$

$

$

Freight and installation

Repair and maintenance (4 years)

Lease (4 years)

Income (Loss)

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