Differential Analysis for a Lease-or-Sell Decision Rhombus Construction Company is considering selling excess machinery with a book value of $125,000 (original cost of $340,000 less accumulated depreciation of $215,000) for $102,000 less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $125,000 for 5 years, after which it is expected to have no residual value. During the period of the lease, Rhombus Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $36,500. a. Prepare a differential analysis, dated May 25 to determine whether Rhombus should lease (Alternative 1) or sell (Alternative 2) the machinery. For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2) May 25 Lease Machinery Sell Machinery Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs Profit (loss) b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain. The net from selling is

Differential Analysis for a Lease-or-Sell Decision Rhombus Construction Company is considering selling excess machinery with a book value of $125,000 (original cost of $340,000 less accumulated depreciation of $215,000) for $102,000 less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $125,000 for 5 years, after which it is expected to have no residual value. During the period of the lease, Rhombus Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $36,500. a. Prepare a differential analysis, dated May 25 to determine whether Rhombus should lease (Alternative 1) or sell (Alternative 2) the machinery. For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2) May 25 Lease Machinery Sell Machinery Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs Profit (loss) b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain. The net from selling is

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Consider a four-year project with the following information: Initial fixed asset investment = $560,000; straight-line depreciation to zero over the four-year life; zero salvage value; price = $28; variable costs = $20; fixed costs = $200,000; quantity sold = 86,000 units; tax rate = 35 percent. How sensitive is OCF to changes in quantity sold? (Do not round intermediate calculations and round your answer to 2 decimal places,
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Differential Analysis for a Lease or Buy Decision Laredo Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,000. The freight and installation costs for the equipment are $620. If purchased, annual repairs and maintenance are estimated to be $420 per year over the four-year useful life of the equipment. Alternatively, Laredo Corporation can lease the equipment from a domestic supplier for $1,380 per year for four years, with no additional costs. Prepare a differential analysis dated March 15 to determine whether Laredo Corporation should lease (Alternative 1) or purchase (Alternative 2) the equipment. (Hint: This is a "lease or buy" decision, which must be analyzed from the perspective of the equipment user, as opposed to the equipment owner.) If an amount is zero, enter "0". Differential Analysis Lease (Alt. 1) or Buy (Alt. 2) Equipment March 15 Lease Buy Differential Equipment (Alternative 1) (Alternative 2) (Alternative 2)…
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