Chapter 12 – Exercise 3

Chapter 12 – Exercise 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 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 your company would only use this equipment for 30 days. Should your company buy the equipment or lease (Schwalbe, p. 492)?





$240d = $6800 + $70d
Subtracting $70 from both sides:
$240d - $70d = $6800 + $70d - $70d
$170d = $6800
Dividing both sides by $70:
2.428d = 97.142
d = 97.142 / 2.428
d = 40



It means that after 40 days the lease will cost the same as the purchase, therefore, it is not recommended to buy the equipment, since the company needs that equipment for only 30 days. The purchase of that equipment would be worth in case the company needed them for more than 40 days.


References


Schwalbe, K., (2006) – Information Technology Project Management – Fourth Edition – Cambridge, MA: Course Technology/Thompson Learning