Assignment2,Chapter12 Exercise 3

Chapter 12Exercise 3

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 $6800 ,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?
Ans :

Calculation for leasing the equipments,
Cost Per day=$ 240
Number of days to use equipments= 30
Therefore the total cost of leasing the equipment= 30* $240
=$7200


Calculation for buying decision,

Initial investment=$6800
operation cost per day=$70
Number of days to use equipments= 30
Total Operation Cost for the project=$70*30
=$2100
Therefore the total cost for the project if the equipment is purchased is=$6800+$2100
=$8900

Leasing cost and purchase cost becomes almost equal in= $8900/$240 days
=37.08 days
approx=37 days

From the calculations done, according to the above scenario for the company, it can be clearly noticed that the company is able to save its cost, if it decides to lease the equipment from the other company for the high quality publications. As the cost for it is only $7200.
But in case of the purchase of the equipment it has to spend $8900 to carry out the same project for 30 days. If this amount is utilized for leasing the equipment then the company has the opportunity to use that equipment for about 37 days and can add more profit.