Gilroy corporation is considering new machine. The machine can be purchased from

Question

Gilroy corporation is considering new machine. The machine can be purchased from an overseas supplier for $3,340. The freight and Installation costs for the machine are $620. if purchased, annual repairs and maintenance are estimated to be $410 per year over the four-year useful life of the machine. Alternatively, Gilroy can lease the machine from a domestic supplier for $1,440 per year for tour years, with no additional costs. Prepare a differential analysis dated October 3, 2U14, to determine whether Gilroy should lease (Alternative 1) or purchase (Alternative 2) the machine. Determine whether Gilroy should lease (Alternative 1) or buy (Alternative 2) the machine.

Explanation / Answer

Answer:

Alternative 1

Differential Analysis Lease Machine (Alternative 1) Buy Machine (Alternative 2) Differential effect on Income (Alternative 2) Costs: Purchase Price 0 3340 3340 Freight and installation 0 620 620 Repairs 0 410 410 Lease (4 years) 1440 0 -1440 Income (loss) -1440 -4370 2930

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