Differential Analysis Involving Opportunity Costs On July 1, Coastal Distribution Company is considering leasing a building and buying the necessary equipment to operate a public Alternatively, the company could use the funds to invest in $149,100 of 6% U.S. Treasury bonds that mature in 16 years. The bor at face value. The following data have been assembled: Cost of store equipment $149,100 Life of store equipment 16 years Estimated residual value of store equipment $18,600 Yearly costs to operate the warehouse, excluding depreciation of equipment $55,900 Yearly expected revenues-years 1-8 75,600 Yearly expected revenues-years 9-16 70,100 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1 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.

Differential Analysis Involving Opportunity Costs On July 1, Coastal Distribution Company is considering leasing a building and buying the necessary equipment to operate a public Alternatively, the company could use the funds to invest in $149,100 of 6% U.S. Treasury bonds that mature in 16 years. The bor at face value. The following data have been assembled: Cost of store equipment $149,100 Life of store equipment 16 years Estimated residual value of store equipment $18,600 Yearly costs to operate the warehouse, excluding depreciation of equipment $55,900 Yearly expected revenues-years 1-8 75,600 Yearly expected revenues-years 9-16 70,100 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1 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

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On August 1, Rantoul Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $900,000 of 3% U.S. Treasury bonds that mature in 15 years. The bonds could be purchased at face value. The following data have been assembled:Revenues/costs AmountCost of store equipment $900,000Life of store equipment 15 yearsEstimated residual value of equipment $45,000Annual store operating costs less depreciation 200,000Annual expected revenues in years 1-6 250,000Annual expected revenues in years 7-15 300,000Problem 1 Instructions a. Prepare a differential analysis as of August 1 presenting the proposed operation of the store for the 15 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). b. Based on the results disclosed by the differential analysis, should the proposal be accepted? c. If the proposal is accepted, what would be the total estimated income…
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