Depreciation
Jenner Inc., a graphic arts studio, is considering the purchase of computer equipment and soft- ware for a total cost of $18,000. Jenner can pay for the equipment and software over three years at the rate of $6,000 per year. The equipment is expected to last 10 to 20 years, but because of changing technology, Jenner believes it may need to replace the system in as soon as three to five years. A three-year lease of similar equipment and software is available for $6,000 per year. Jen- ner's accountant has asked you to recommend whether the company should purchase or lease the equipment and software and to suggest the length of time over which to depreciate the soft- ware and equipment if the company makes the purchase.
Required
Ignoring the effect of taxes, would you recommend the purchase or the lease? Why or why not? Referring to the definition of depreciation, what appropriate useful life should be used for the equipment and software?