Sloan Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $125,500. The freight and installation costs for the equipment are $1,600. If purchased, annual repairs and maintenance are estimated to be $2,500 per year over the five-year useful life of the equipment. Alternatively, Sloan can lease the equipment from a domestic supplier for $30,000 per year for five years, with no additional costs.
Prepare a differential analysis dated December 3 to determine whether Sloan 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". Use a minus sign to indicate a loss.
Differential Analysis Lease Equipment (Alt. 1) or Buy Equipment (Alt. 2) December 3 Lease Equipment (Alternative 1) Buy Equipment (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $ $ $ Costs: Purchase price $ $ $ Freight and installation Repair and maintenance (5 years) Lease (5 years) Income (loss) $ $ $
Sloan Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $125,500. The freight and installation costs for the equipment are $1,600. If purchased, annual repairs and maintenance are estimated to be $2,500 per year over the five-year useful life of the equipment. Alternatively, Sloan can lease the equipment from a domestic supplier for $30,000 per year for five years, with no additional costs.
Prepare a differential analysis dated December 3 to determine whether Sloan 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". Use a minus sign to indicate a loss.
| Differential Analysis | |||
| Lease Equipment (Alt. 1) or Buy Equipment (Alt. 2) | |||
| December 3 | |||
| Lease Equipment (Alternative 1) | Buy Equipment (Alternative 2) | Differential Effect on Income (Alternative 2) | |
| Revenues | $ | $ | $ |
| Costs: | |||
| Purchase price | $ | $ | $ |
| Freight and installation | |||
| Repair and maintenance (5 years) | |||
| Lease (5 years) | |||
| Income (loss) | $ | $ | $ |
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Related questions
Kincaid Company owns equipment with a cost of $367,700 andaccumulated depreciation of $56,200 that can be sold for $274,600,less a 3% sales commission. Alternatively, Kincaid Company canlease the equipment for three years for a total of $285,700, at theend of which there is no residual value. In addition, the repair,insurance, and property tax expense that would be incurred byKincaid Company on the equipment would total $15,300 over the threeyear lease.
a. Prepare a differential analysis on February18, as to whether Kincaid Company should lease (Alternative 1) orsell (Alternative 2) the equipment. For those boxes in which youmust enter subtracted or negative numbers use a minus sign.
| Differential Analysis | |||
| Lease(Alt. 1) or Sell (Alt. 2) Equipment | |||
| February 18 | |||
| Lease Equipment (Alternative 1) | Sell Equipment (Alternative 2) | Differential Effect on Income (Alternative2) | |
| Revenues | $ | $ | $ |
| Costs | |||
| Income (Loss) | $ | $ | $ |
b. Should Kincaid Company lease (Alternative 1)or sell (Alternative 2) the machine?
