Lease or sell Plymouth Company owns equipment with a cost of $550,000 and accumulated depreciation of $350,000 that can be sold for $330,000, less a 4% sales commission. Alternatively, Plymouth Company can lease the equipment for four years for a total of $400,000, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Plymouth Company on the equipment would total $35,000 over the four-year lease. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.     Open spreadsheet   Prepare a differential analysis on August 7 as to whether Plymouth Company should lease (Alternative 1) or sell (Alternative 2) the equipment. Use a minus sign to indicate costs or negative differential effect on income. Differential Analysis Lease (Alt. 1) or Sell (Alt. 2) Equipment August 7     Lease Equipment (Alternative 1)   Sell Equipment (Alternative 2)   Differential Effect on Income (Alternative 2) Revenues    $   $   $ Costs                             Profit (Loss)    $   $   $   Should Plymouth Company lease (Alternative 1) or sell (Alternative 2) the machine?

Question

Lease or sell

Plymouth Company owns equipment with a cost of $550,000 and accumulated depreciation of $350,000 that can be sold for $330,000, less a 4% sales commission. Alternatively, Plymouth Company can lease the equipment for four years for a total of $400,000, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Plymouth Company on the equipment would total $35,000 over the four-year lease.

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.

 

 
Open spreadsheet

 

Prepare a differential analysis on August 7 as to whether Plymouth Company should lease (Alternative 1) or sell (Alternative 2) the equipment. Use a minus sign to indicate costs or negative differential effect on income.

Differential Analysis
Lease (Alt. 1) or Sell (Alt. 2) Equipment
August 7
    Lease Equipment (Alternative 1)   Sell Equipment (Alternative 2)   Differential Effect on Income (Alternative 2)
Revenues    $   $   $
Costs                            
Profit (Loss)    $   $   $

 

Should Plymouth Company lease (Alternative 1) or sell (Alternative 2) the machine?

 

 

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