7 Differential AnalysisOperate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2)July 1OperateInvest inDifferentialWarehouseBondsEffects(Alternative 1) (Alternative 2) (Alternative 2)Revenues%$4Costs:Costs to operate warehouseCost of equipment less residual value$4Profit (Loss)Feedback2. Based on the results disclosed by the differential analysis, should the proposal be accepted?No3. If the proposal is accepted, what is the total estimated operating income of the warehouse for16 years?%24 Differential Analysis Involving Opportunity CostsOn July 1, Matrix Stores Inc. is considering leasing a building and buying the necessary equipmentto operate a public warehouse. Alternatively, the company could use the funds to invest in$151,200 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased atface value. The following data have been assembled:Cost of store equipment$151,200Life of store equipment16 years$17,300Estimated residual value of store equipmentYearly costs to operate the warehouse, excluding$55,500depreciation of equipment75,700Yearly expected revenues-years 1-869,500Yearly expected revenues-years 9-16Required:1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehousefor the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.Differential Analysis

Differential analysis shows difference between revenues and expenses of two alternatives. In this…

Differential Analysis Operate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2) July 1 Operate Invest in Differential Warehouse Bonds Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues $4 24 Costs: Costs to operate warehouse Cost of equipment less residual value Profit (Loss) Feedback 2. Based on the results disclosed by the differential analysis, should the proposal be accepted? No 3. If the proposal is accepted, what is the total estimated operating income of the warehouse fa 16 years? $4

Differential Analysis Operate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2) July 1 Operate Invest in Differential Warehouse Bonds Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues $4 24 Costs: Costs to operate warehouse Cost of equipment less residual value Profit (Loss) Feedback 2. Based on the results disclosed by the differential analysis, should the proposal be accepted? No 3. If the proposal is accepted, what is the total estimated operating income of the warehouse fa 16 years? $4

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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