Lease or Sell Astro Company owns a machine with a cost of $366,700 and accumulat

Question

Lease or Sell

Astro Company owns a machine with a cost of $366,700 and accumulated depreciation of $54,000 that can be sold for $274,700, less a 4% sales commission. Alternatively, the machine can be leased by Astro 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 Astro Company on the machine would total $15,700 over the three years.

Prepare a differential analysis on January 12, 2014, as to whether Astro Company should lease (Alternative 1) or sell (Alternative 2) the machine.

Differential Analysis

Lease Machine (Alt. 1) or Sell Machine (Alt. 2)

January 12, 2014

Lease Machine (Alternative 1)

Sell Machine (Alternative 2)

Differential Effect on Income (Alternative 2)

Revenues

$

$

$

Costs

Income (Loss)

$

$

$

Should Astro Company lease (Alternative 1) or sell (Alternative 2) the machine?

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Prepare a differential analysis on January 12, 2014, as to whether Astro Company should lease (Alternative 1) or sell (Alternative 2) the machine.

Differential Analysis

Lease Machine (Alt. 1) or Sell Machine (Alt. 2)

January 12, 2014

Lease Machine (Alternative 1)

Sell Machine (Alternative 2)

Differential Effect on Income (Alternative 2)

Revenues

$

$

$

Costs

Income (Loss)

$

$

$

Explanation / Answer

Differential analysis:

The company should lease the machine as there is a incremental income of $ 5788 on leasing

Lease machine sell machine Differential effect on income Revenue 285200 274700 10500 cost -15700 -10988     [274700*.04] -4712 Income /(loss) 269500 263712 5788

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