1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Differential Analysis
Operate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2)
July 1
Operate
Invest in
Differential
Warehouse
Bonds
Effects
(Alternative 1) (Alternative 2) (Alternative 2)
Revenues
Costs:
Costs to operate warehouse
Cost of equipment less residual value
Profit (Loss)
Transcribed Image Text:Differential Analysis Operate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2) July 1 Operate Invest in Differential Warehouse Bonds Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs: Costs to operate warehouse Cost of equipment less residual value Profit (Loss)
Differential Analysis Involving Opportunity Costs
On July 1, Matrix Stores Inc. is considering leasing a building and buying the necessary equipment to operate a public warehouse.
Alternatively, the company could use the funds to invest in $149,800 of 6% U.S. Treasury bonds that mature in 16 years. The bonds
could be purchased at face value. The following data have been assembled:
Cost of store equipment
$149,800
Life of store equipment
16 years
Estimated residual value of store equipment
$17,600
Yearly costs to operate the warehouse, excluding
depreciation of equipment
$56,100
Yearly expected revenues-years 1-8
76,000
Yearly expected revenues-years 9-16
70,400
Required:
1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as
compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate
a loss.
Transcribed Image Text:Differential Analysis Involving Opportunity Costs On July 1, Matrix Stores Inc. is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $149,800 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $149,800 Life of store equipment 16 years Estimated residual value of store equipment $17,600 Yearly costs to operate the warehouse, excluding depreciation of equipment $56,100 Yearly expected revenues-years 1-8 76,000 Yearly expected revenues-years 9-16 70,400 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
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