Question

Lease or Sell Casper Company owns a equipment with a cost of $366,000 and accumulated depreciation of $53,200 that can be sold for $273,400, less a 3% sales commission. Alternatively, Casper Company can lease the equipment to another company for three years for a total of $285,200, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Casper Company on the equipment would total $15,100 over the three years.
Prepare a differential analysis on March 23 as to whether Casper Company should lease (Alternative 1) or sell (Alternative 2) the equipment. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Answer 1

Answer:

The Company should sell the equipment (Alternative 2)

Explanation:

Preparation of a differential analysis on March 23 as to whether Casper Company should lease (Alternative 1) or sell (Alternative 2) the equipment.

DIFFERENTIAL ANALYSIS

Lease Equipment (Alt. 1) or Sell Equipment (Alt. 2) March 23, 2014

Lease Equipment (Alternative 1); Sell Equipment (Alternative 2) Differential Effect on Income (Alternative 2)

Revenues $285,200 $273,400 –$11,800

Costs –$15,100 –$8,202 $6,898

($273,400*3%=$8,202)

Income (Loss) $270,100 $265,198 $4,902

Based on the above Differential Analysis the Company should sell the equipment (Alternative 2) reason been that the company income will increase by $4,902 If the Equipment is sold out.