Differential Analysis for a Lease or Sell Decision Burlington Construction Company is considering selling excess machinery with a book value of $279,600 (original cost of $399,200 less accumulated depreciation of $119,600) for $274,300, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $284,700 for five years, after which it is expected to have no residual value. During the period of the lease, Burlington Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,100. a. Prepare a differential analysis dated January 15 to determine whether Burlington Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to indicate loss. Differential Analysis Lease (Alt. 1) or Sell (Alt. 2) Machinery January 15 Lease Sell Differential Machinery (Alternative 1) (Alternative 2) (Alternative 2) Machinery Effects Revenues Costs Profit (Loss)
Differential Analysis for a Lease or Sell Decision Burlington Construction Company is considering selling excess machinery with a book value of $279,600 (original cost of $399,200 less accumulated depreciation of $119,600) for $274,300, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $284,700 for five years, after which it is expected to have no residual value. During the period of the lease, Burlington Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,100. a. Prepare a differential analysis dated January 15 to determine whether Burlington Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to indicate loss. Differential Analysis Lease (Alt. 1) or Sell (Alt. 2) Machinery January 15 Lease Sell Differential Machinery (Alternative 1) (Alternative 2) (Alternative 2) Machinery Effects Revenues Costs Profit (Loss)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Differential Analysis for a Lease or Sell Decision
Burlington Construction Company is considering selling excess machinery with a book value of $279,600 (original cost of $399,200 less accumulated depreciation of $119,600) for $274,300, less a 5%
brokerage commission. Alternatively, the machinery can be leased for a total of $284,700 for five years, after which it is expected to have no residual value. During the period of the lease, Burlington
Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,100.
a. Prepare a differential analysis dated January 15 to determine whether Burlington Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to
indicate a loss.
Differential Analysis
Lease (Alt. 1) or Sell (Alt. 2) Machinery
January 15
Lease
Sell
Differential
Machinery
(Alternative 1) (Alternative 2) (Alternative 2)
Machinery
Effects
Revenues
2$
$
2$
Costs
Profit (Loss)
Expert Solution
Answer)
| Differential Analysis | |||
| Lease (Alt.1) or Sell (Alt. 2) Machinery | |||
| Jan'15 | |||
| Lease Machinery | Sell Machinery | Differential Effects | |
| (Alternative 1) | (Alternative 2) | (Alternative 2) | |
| Revenues | $ 284,700 | $ 274,300 | $ -10,400 |
| Costs | $ -125,500 | -13,715 | $ 111,785 |
| Profit (loss) | $ 159,200 | $ 260,585 | $ 101,385 |
The company should sell the machinery as it will provide additional net Profit of $ 1,01,385 (i.e. $ 260,585 - $ 159,200)
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