Answer:
Lease Equipment $150,000
BUY EQUIPMENT$134,700
Differential Effects-$15,300
The company should choose BUY EQUIPMENT which is Alternative 2
Explanation:
Preparation of the differential analysis dated March 15 to determine whether Laredo Corporation should lease (Alternative 1) or purchase (Alternative 2) the equipment
Differential Analysis
Lease (Alt. 1) or Buy (Alt. 2) Equipment
March 15
Lease Equipment (Alternative 1); Buy Equipment
(Alternative 2); Differential Effects (Alternative 2)
Costs:
Purchase price $0 $120,000 $120,000
Freight and installation $0 $1,500 $1,500
Repair and maintenance (6 years) $0 $13,200.$13,200
($2,200*6=$13,200)
Lease (6 years) $150,000 $0 -$150,000
($25,000*6)
Total costs $150,000 $134,700 -$15,300
Based on the above calculation the company should choose BUY EQUIPMENT which is Alternative 2
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