Laredo Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $120,000. The freight and installation costs for the equipment are $1,500. If purchased, annual repairs and maintenance are estimated to be $2,200 per year over the six-year useful life of the equipment. Alternatively, Laredo Corporation can lease the equipment from a domestic supplier for $25,000 per year for six 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 AnalysisLease (Alt. 1) or Buy (Alt. 2) EquipmentMarch 15 Lease Equipment (Alternative 1) Buy Equipment (Alternative 2) Differential Effects (Alternative 2) Costs: Purchase price $fill in the blank da8304f83005009_1 $fill in the blank da8304f83005009_2 $fill in the blank da8304f83005009_3 Freight and installation fill in the blank da8304f83005009_4 fill in the blank da8304f83005009_5 fill in the blank da8304f83005009_6 Repair and maintenance (6 years) fill in the blank da8304f83005009_7 fill in the blank da8304f83005009_8 fill in the blank da8304f83005009_9 Lease (6 years) fill in the blank da8304f83005009_10 fill in the blank da8304f83005009_11 fill in the blank da8304f83005009_12 Total costs $fill in the blank da8304f83005009_13 $fill in the blank da8304f83005009_14 $fill in the blank da8304f83005009_15 Determine whether Laredo should lease (Alternative 1) or buy (Alternative 2) the equipment.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 2E

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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 $120,000. The freight and installation costs for the equipment are $1,500. If purchased, annual repairs and maintenance are estimated to be $2,200 per year over the six-year useful life of the equipment. Alternatively, Laredo Corporation can lease the equipment from a domestic supplier for $25,000 per year for six 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 AnalysisLease (Alt. 1) or Buy (Alt. 2) EquipmentMarch 15

	Lease Equipment (Alternative 1)	Buy Equipment (Alternative 2)	Differential Effects (Alternative 2)
Costs:
Purchase price	$fill in the blank da8304f83005009_1	$fill in the blank da8304f83005009_2	$fill in the blank da8304f83005009_3
Freight and installation	fill in the blank da8304f83005009_4	fill in the blank da8304f83005009_5	fill in the blank da8304f83005009_6
Repair and maintenance (6 years)	fill in the blank da8304f83005009_7	fill in the blank da8304f83005009_8	fill in the blank da8304f83005009_9
Lease (6 years)	fill in the blank da8304f83005009_10	fill in the blank da8304f83005009_11	fill in the blank da8304f83005009_12
Total costs	$fill in the blank da8304f83005009_13	$fill in the blank da8304f83005009_14	$fill in the blank da8304f83005009_15

Determine whether Laredo should lease (Alternative 1) or buy (Alternative 2) the equipment.

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