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I've very confused on finding the lease equipment, buy equipment, and differential effects

Ive Very Confused On Finding The Lease Equipment Buy Equipment And Differential Effects class=

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Costs for Each Alternative

1. Alternative 1: Lease Equipment

- Lease cost per year: $1,580

- Total lease cost over 4 years: \( 1,580 \times 4 = 6,320 \)

2. Alternative 2: Buy Equipment

- Purchase price: $3,220

- Freight and installation: $620

- Annual repairs and maintenance: $430 per year

- Total repairs and maintenance over 4 years: \( 430 \times 4 = 1,720 \)

- Total cost of buying over 4 years: \( 3,220 + 620 + 1,720 = 5,560 \)

Differential Analysis

- Purchase price

 - Lease: $0

 - Buy: $3,220

 - Differential effect: $3,220

- Freight and installation

 - Lease: $0

 - Buy: $620

 - Differential effect: $620

- Repairs and maintenance

 - Lease: $0

 - Buy: $1,720

 - Differential effect: $1,720

- Lease cost (4 years)

 - Lease: $6,320

 - Buy: $0

 - Differential effect: -$6,320

Total Costs

- Total cost for leasing: $6,320

- Total cost for buying: $5,560

- Differential effect (cost saving if buying): $760

Conclusion

Moffett Industries would save $760 over the 4-year period by purchasing the equipment rather than leasing it. Therefore, Moffett Industries should buy the equipment (Alternative 2).

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