Suppose your company is trying to decide whether it should buy special equipment to prepare some of its high-quality publications itself or lease the equipment from another company. Suppose leasing the equipment cost $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 your company would only use this equipment for 30 days. Should your company buy the equipment or lease it?
Suppose the company uses the equipment for x days.
If the company buys the equipment, the total cost is 6800 + 70x.
If the company leases the equipment, the total cost is 240x.
For break-even, 6800 + 70x = 240x
Or (240 - 70)x = 6800
Or 170x = 6800
Therefore, x = 6800/170 = 40 days
If the company wants to use the equipment only for 30 days, then
Total cost if the company buys the equipment = 6800 + 70*30 = $8,900
Total cost if the company leases the equipment = 240*30 = $7,200
Therefore, it is more economical for the company to lease the equipment.© BrainMass Inc. brainmass.com October 9, 2019, 8:24 pm ad1c9bdddf