Textbook Problem

Lease or sell

Claxon Company owns a machine with a cost of $305,000 and accumulated depreciation of $65,000 that can he sold for $262,000, less a 5% sales commission. Alternatively, the machine can be leased by Claxon Company for three years for a total of $272,000, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Claxon Company on the machine would total $21,600 over the three years. Prepare a differential analysis on January 12 as to whether Claxon Company should lease (Alternative 1) or sell (Alternative 2) the machine.