Differential Analysis for a Lease or Sell Decision Burlington Construction Company is considering selling excess machinery with a book value of $115,000 (original cost of $275,000 less accumulated depreciation of $160,000) for $90,000, less a 6% brokerage commission. Alternatively, the machinery can be leased for a total of $100,000, for four 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 $9,000. 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 Machinery (Alternative 1) Sell Machinery (Alternative 2) Differential Effect (Alternative 2) Revenues $fill in the blank 7dcebb02304ffe7_1 $fill in the blank 7dcebb02304ffe7_2 $fill in the blank 7dcebb02304ffe7_3 Costs fill in the blank 7dcebb02304ffe7_4 fill in the blank 7dcebb02304ffe7_5 fill in the blank 7dcebb02304ffe7_6 Profit (Loss) $fill in the blank 7dcebb02304ffe7_7 $fill in the blank 7dcebb02304ffe7_8 $fill in the blank 7dcebb02304ffe7_9 b.  On the basis of the data presented, would it be advisable to lease or sell the machinery?

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Chapter1: Financial Statements And Business Decisions
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Differential Analysis for a Lease or Sell Decision

Burlington Construction Company is considering selling excess machinery with a book value of $115,000 (original cost of $275,000 less accumulated depreciation of $160,000) for $90,000, less a 6% brokerage commission. Alternatively, the machinery can be leased for a total of $100,000, for four 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 $9,000.

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
Machinery
(Alternative 1)
Sell
Machinery
(Alternative 2)
Differential
Effect
(Alternative 2)
Revenues $fill in the blank 7dcebb02304ffe7_1 $fill in the blank 7dcebb02304ffe7_2 $fill in the blank 7dcebb02304ffe7_3
Costs fill in the blank 7dcebb02304ffe7_4 fill in the blank 7dcebb02304ffe7_5 fill in the blank 7dcebb02304ffe7_6
Profit (Loss) $fill in the blank 7dcebb02304ffe7_7 $fill in the blank 7dcebb02304ffe7_8 $fill in the blank 7dcebb02304ffe7_9

b.  On the basis of the data presented, would it be advisable to lease or sell the machinery?
 

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