Accounting 26th Edition by Carl Warren ,Jim Reeve ,Jonathan Duchac

Exercise 5

Differential analysis for a lease or buy decision
Garr Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,900. The freight and installation costs for the equipment are $515. If purchased, annual repairs and maintenance are estimated to be $410 per year over the four-year useful life of the equipment. Alternatively, Garr can lease the equipment from a domestic supplier for $1,750 per year for four years, with no additional costs. Purchase a differential analysis dated August 4 to determine whether Garr 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.