Gilroy Corporation is considering new equipment. The equipmentcan be purchased from an overseas supplier for $3,200. The freightand installation costs for the equipment are $640. If purchased,annual repairs and maintenance are estimated to be $400 per yearover the four-year useful life of the machine. Alternatively,Gilroy can lease the machine from a domestic supplier for $1,400per year for four years, with no additional costs.
Prepare a differential analysis datedOctober 3, 2012 to determine whether Gilroy should lease(Alternative 1) or purchase (Alternative 2) the machine. (Hint:This is a "lease or buy" decision, which must be analyzed from theperspective of the equipment user, as opposed to the equipmentowner.) If an amount is zero, enter zero "0".
Lease Machine (Alternative1)
Costs:
Purchase Price
Freight and Installation
Repair and Maintenance (4years)
Lease (4 years)
Income (loss)
Buy Machine (Alternative2)
Costs:
Purchase Price
Freight and Installation
Repair and Maintenance (4years)
Lease (4 years)
Income (loss)
Differential Income (Alternative3)
Costs:
Purchase Price
Freight and Installation
Repair and Maintenance (4years)
Lease (4 years)
Income (loss)
Gilroy Corporation is considering new equipment. The equipmentcan be purchased from an overseas supplier for $3,200. The freightand installation costs for the equipment are $640. If purchased,annual repairs and maintenance are estimated to be $400 per yearover the four-year useful life of the machine. Alternatively,Gilroy can lease the machine from a domestic supplier for $1,400per year for four years, with no additional costs.
Prepare a differential analysis datedOctober 3, 2012 to determine whether Gilroy should lease(Alternative 1) or purchase (Alternative 2) the machine. (Hint:This is a "lease or buy" decision, which must be analyzed from theperspective of the equipment user, as opposed to the equipmentowner.) If an amount is zero, enter zero "0".
Lease Machine (Alternative1)
Costs:
Purchase Price
Freight and Installation
Repair and Maintenance (4years)
Lease (4 years)
Income (loss)
Buy Machine (Alternative2)
Costs:
Purchase Price
Freight and Installation
Repair and Maintenance (4years)
Lease (4 years)
Income (loss)
Differential Income (Alternative3)
Costs:
Purchase Price
Freight and Installation
Repair and Maintenance (4years)
Lease (4 years)
Income (loss)