Suppose that your company is trying to decide wheher it should buy special equip

Question

Suppose that your company is trying to decide wheher it should buy special equipment to prepare high-quality publications itself or lease the equipment from another company. Suppose that leasing the equipment costs $240 per day. If you decide to purchase the equipment, the initial investment is 6,800, and operations will cost $70 per day. After how many days will the lease cost be the same as the purchase cost for the equipment? Assume that your company would only use this equipment for 30 days. Should your company buy the equipment or lease it?

Explanation / Answer

If the company leases the shipment for 30 days at the rate of $240 per day,

The total cost would be $240 * 30, i.e. $7,200.

And, if it decides to buy the equipment,
The total cost would be $6,800 + $70 * 30
=$6,800 + $2,100
=$8,900

Now, for calculations of number of days after which the lease cost be the same as the purchase cost for the equipment,

Number of days = ($8900/$240)
= 37.08 days

Therefore, the lease cost will be the same as the purchase cost of the equipment after approximately 37 days.
Hence, from the above calculations, we can say that it would be beneficial for the company to lease the equipment, as it is $1,700 cheaper to lease the equipment than to buy it.

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