Ask Question
13 July, 09:19

Laredo Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $120,000. The freight and installation costs for the equipment are $1,500. If purchased, annual repairs and maintenance are estimated to be $2,200 per year over the six-year useful life of the equipment. Alternatively, Laredo Corporation can lease the equipment from a domestic supplier for $25,000 per year for six years, with no additional costs. Prepare a differential analysis dated March 15 to determine whether Laredo Corporation should lease (Alternative 1) or purchase (Alternative 2) the equipment.

+4
Answers (1)
  1. 13 July, 09:27
    0
    It is cheaper for Laredo to purchase the machine as he saves a sum of $15,300 through it.

    Explanation:

    Differential analysis is a system of evaluating the cost and benefits that would arise from alternative solutions to the same problems. The analysis of different options towards a decision making in order to arrive at the best option

    Cost of Purchase.

    Initial cost - $120,000

    Freight & Installation - $ 1500

    Repair & Maintenance - $2200 * 6 - $13200

    Total - $134,700

    Cost of lease = $25,000*6=$150,000

    It is cheaper for Laredo to purchase the machine as he saves a sum of $15,300 through it.
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Laredo Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $120,000. The freight and ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers