Differential Analysis Involving Opportunity Costs On October 1, Matrix 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 $149,100 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased 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 $17,900 Yearly costs to operate the store, excluding depreciation of store equipment $56,100 Yearly expected revenues—years 1-8 $74,800 Yearly expected revenues—years 9-16 $71,000 Required: 1. Prepare a differential analysis as of October 1 to determine whether to Operate Retail Store (Alternative 1) or Invest in Bonds (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Operate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2) October 1 Operate Retail Store (Alternative 1) Invest in Bonds (Alternative 2) Differential Effects (Alternative 2) Revenues $fill in the blank $fill in the blank $fill in the blank Costs: Costs to operate store fill in the blank fill in the blank fill in the blank Cost of equipment less residual value fill in the blank fill in the blank fill in the blank Profit (loss) $fill in the blank $fill in the blank $fill in the blank 2. Based on the results disclosed by the differential analysis, should the proposal be accepted? 3. If the proposal is accepted, what would be the total estimated income from operations of the store for the 16 years? $fill in the blank

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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Differential Analysis Involving Opportunity Costs

On October 1, Matrix 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 $149,100 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased 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	$17,900
Yearly costs to operate the store, excluding
	depreciation of store equipment	$56,100
Yearly expected revenues—years 1-8	$74,800
Yearly expected revenues—years 9-16	$71,000

Required:

1. Prepare a differential analysis as of October 1 to determine whether to Operate Retail Store (Alternative 1) or Invest in Bonds (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis

Operate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2)

October 1

	Operate Retail Store (Alternative 1)	Invest in Bonds (Alternative 2)	Differential Effects (Alternative 2)
Revenues	$fill in the blank	$fill in the blank	$fill in the blank
Costs:
Costs to operate store	fill in the blank	fill in the blank	fill in the blank
Cost of equipment less residual value	fill in the blank	fill in the blank	fill in the blank
Profit (loss)	$fill in the blank	$fill in the blank	$fill in the blank