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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 $276,200 (original cost of $398,000 less accumulated depreciation of $121,800) for $278,000, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $286,500 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 $24,700. 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 Revenues January 15 Lease Sell Machinery Machinery Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) 286,500 $278,000 ✔ Costs Profit (Loss) Feedback ▼Check My Work Subtract the lease costs from the lease revenues. Subtract the sell machine costs from the sell machine revenue. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2. b. On the basis of the data presented, would it be advisable to lease or sell the machinery?

Differential Analysis for a Lease or Sell Decision Burlington Construction Company is considering selling excess machinery with a book value of $276,200 (original cost of $398,000 less accumulated depreciation of $121,800) for $278,000, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $286,500 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 $24,700. 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 Revenues January 15 Lease Sell Machinery Machinery Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) 286,500 $278,000 ✔ Costs Profit (Loss) Feedback ▼Check My Work Subtract the lease costs from the lease revenues. Subtract the sell machine costs from the sell machine revenue. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2. b. On the basis of the data presented, would it be advisable to lease or sell the machinery?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter17: Long-term Investment Analysis
Section: Chapter Questions
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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 $276,200 (original cost of $398,000 less accumulated depreciation of $121,800) for $278,000, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $286,500 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 $24,700. 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 Revenues January 15 Lease Sell Machinery Machinery Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) 286,500 $278,000 ✔ Costs Profit (Loss) Feedback ▼Check My Work Subtract the lease costs from the lease revenues. Subtract the sell machine costs from the sell machine revenue. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2. b. On the basis of the data presented, would it be advisable to lease or sell the machinery?
Transcribed Image Text:Differential Analysis for a Lease or Sell Decision Burlington Construction Company is considering selling excess machinery with a book value of $276,200 (original cost of $398,000 less accumulated depreciation of $121,800) for $278,000, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $286,500 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 $24,700. 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 Revenues January 15 Lease Sell Machinery Machinery Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) 286,500 $278,000 ✔ Costs Profit (Loss) Feedback ▼Check My Work Subtract the lease costs from the lease revenues. Subtract the sell machine costs from the sell machine revenue. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2. b. On the basis of the data presented, would it be advisable to lease or sell the machinery?
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