Sloan Corporation is considering new equipment. The equipment can be purchased f

Question

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) $ $ $

Explanation / Answer

Answers

Differential Analysis

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

Dec-03

Lease Equipment (Alternative 1)

Buy Equipment (Alternative 2)

Differential Effect on Income (Alternative 2)

Revenues

$                           -  

$                                -  

$                      -  

Costs:

Purchase price

$                           -  

$                  (125,500.00)

$        (125,500.00)

Freight and installation

$                           -  

$                      (1,600.00)

$           (1,600.00)

Repair and maintenance (5 years)

$                           -  

$                    (12,500.00)

$          (12,500.00)

Lease (5 years)

$             (150,000.00)

$                                -  

$         150,000.00

Income (loss)

$             (150,000.00)

$                  (139,600.00)

$           10,400.00

Differential Analysis

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

Dec-03

Lease Equipment (Alternative 1)

Buy Equipment (Alternative 2)

Differential Effect on Income (Alternative 2)

Revenues

$                           -  

$                                -  

$                      -  

Costs:

Purchase price

$                           -  

$                  (125,500.00)

$        (125,500.00)

Freight and installation

$                           -  

$                      (1,600.00)

$           (1,600.00)

Repair and maintenance (5 years)

$                           -  

$                    (12,500.00)

$          (12,500.00)

Lease (5 years)

$             (150,000.00)

$                                -  

$         150,000.00

Income (loss)

$             (150,000.00)

$                  (139,600.00)

$           10,400.00

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.