**Differential Analysis for a Lease or Buy Decision**Laredo Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,120. The freight and installation costs for the equipment are $650. If purchased, annual repairs and maintenance are estimated to be $390 per year over the four-year useful life of the equipment. Alternatively, Laredo Corporation can lease the equipment from a domestic supplier for $1,520 per year for four years, with no additional costs.Prepare a differential analysis dated March 15 to determine whether Laredo Corporation 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".*---### Differential Analysis**Lease (Alt. 1) or Buy (Alt. 2) Equipment** **March 15**| Costs | Lease Equipment (Alternative 1) | Buy Equipment (Alternative 2) | Differential Effects (Alternative 2) ||------------------------------|---------------------------------|-------------------------------|--------------------------------------|| Purchase price | $ | $ | $ || Freight and installation | $ | $ | $ || Repair and maintenance (4 years) | $ | $ | $ || Lease (4 years) | $ | $ | $ || **Total costs** | $ | $ | $ |---Determine whether Laredo should lease (Alternative 1) or buy (Alternative 2) the equipment.---**Explanation of the Table:**This table presents a structured comparison to aid in the decision-making process regarding leasing or purchasing equipment. It outlines the cost components involved in each alternative:1. **Purchase Price**: The initial purchase cost if the equipment is bought.2. **Freight and Installation**: Additional costs for setting up the equipment if purchased.3. **Repair and Maintenance (4 years)**: Estimated upkeep costs over four years if the equipment is purchased.4. **Lease (4 years)**: Total lease payments over four years if the equipment is leased.5. **Total Costs**: The sum of all expenditures for each alternative.The "Differential Effects" column helps in identifying the cost difference between the two options

Differential analysis helps to compare the alternatives and gives a result that is cost efficient for the company. Buy the equipment means to purchase the equipment. Lease equipment means to take the equipment on lease for a particular period of time.Differential Analysis Lease (Alt 1) or Buy (Alt 2) Equipment Mar-15 Lease Buy Differential Equipment Equipment Effects (Alternative 1) (Alternative 2) (Alternative 2) Costs: Purchase price $0 $3120 $3120 Freight and installation 0 650 650 Repair and maintenance (4 years) 0 1560 1560 Lease (4 years) 6080 0 -6080 Total costs $6080 $5330 -750 Working: Repair and maintenance expense for alternative 2 = $390 * 4 years = $1560 Lease cost, alternative 1 = $1520 * 4 years = $6080 Conclusion: Laredo should choose alternative 2 buy equipment.

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Differential Analysis for a Lease or Buy Decision Laredo Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,120. The freight and installation costs for the equipment are $650. If purchased, annual repairs and maintenance are estimated to be $390 per year over the four-year useful life of the equipment. Alternatively, Laredo Corporation can lease the equipment from a domestic supplier for $1,520 per year for four years, with no additional costs. Prepare a differential analysis dated March 15 to determine whether Laredo Corporation 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". Costs: Differential Analysis Lease (Alt. 1) or Buy (Alt. 2) Equipment March 15 Purchase price Freight and installation Repair and maintenance (4 years) Lease (4 years) Total costs Lease Buy Equipment (Alternative 1) (Alternative 2) (Alternative 2) Equipment Differential Effects Determine whether Laredo should lease (Alternative 1) or buy (Alternative 2) the equipment.

Differential Analysis for a Lease or Buy Decision Laredo Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,120. The freight and installation costs for the equipment are $650. If purchased, annual repairs and maintenance are estimated to be $390 per year over the four-year useful life of the equipment. Alternatively, Laredo Corporation can lease the equipment from a domestic supplier for $1,520 per year for four years, with no additional costs. Prepare a differential analysis dated March 15 to determine whether Laredo Corporation 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". Costs: Differential Analysis Lease (Alt. 1) or Buy (Alt. 2) Equipment March 15 Purchase price Freight and installation Repair and maintenance (4 years) Lease (4 years) Total costs Lease Buy Equipment (Alternative 1) (Alternative 2) (Alternative 2) Equipment Differential Effects Determine whether Laredo should lease (Alternative 1) or buy (Alternative 2) the equipment.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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