Differential Analysis Involving Opportunity Costs On October 1, Midway Distribution Company 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 $148,300 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 $148,300 Life of store equipment 16 years Estimated residual value of store equipment $18,700 Yearly costs to operate the store, excluding depreciation of store equipment $56,300 Yearly expected revenues—years 1-8 $75,300 Yearly expected revenues—years 9-16 $70,600 Required: 1. Prepare a differential analysis as of October 1 presenting the proposed operation of the store for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter zero "0". 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 Effect on Income (Alternative 2) Revenues $fill in the blank 14f370010fd5049_1 $fill in the blank 14f370010fd5049_2 $fill in the blank 14f370010fd5049_3 Costs: Costs to operate store fill in the blank 14f370010fd5049_4 fill in the blank 14f370010fd5049_5 fill in the blank 14f370010fd5049_6 Cost of equipment less residual value fill in the blank 14f370010fd5049_7 fill in the blank 14f370010fd5049_8 fill in the blank 14f370010fd5049_9 Income (Loss) $fill in the blank 14f370010fd5049_10 $fill in the blank 14f370010fd5049_11 $fill in the blank 14f370010fd5049_12 2. Based on the results disclosed by the differential analysis, should the proposal to operate a retail store 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 4002acfec00b06f_2
Differential Analysis Involving Opportunity Costs
On October 1, Midway Distribution Company 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 $148,300 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 | $148,300 | |
Life of store equipment | 16 years | |
Estimated residual value of store equipment | $18,700 | |
Yearly costs to operate the store, excluding | ||
depreciation of store equipment | $56,300 | |
Yearly expected revenues—years 1-8 | $75,300 | |
Yearly expected revenues—years 9-16 | $70,600 |
Required:
1. Prepare a differential analysis as of October 1 presenting the proposed operation of the store for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter zero "0".
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 Effect on Income (Alternative 2) |
|
Revenues | $fill in the blank 14f370010fd5049_1 | $fill in the blank 14f370010fd5049_2 | $fill in the blank 14f370010fd5049_3 |
Costs: | |||
Costs to operate store | fill in the blank 14f370010fd5049_4 | fill in the blank 14f370010fd5049_5 | fill in the blank 14f370010fd5049_6 |
Cost of equipment less residual value | fill in the blank 14f370010fd5049_7 | fill in the blank 14f370010fd5049_8 | fill in the blank 14f370010fd5049_9 |
Income (Loss) | $fill in the blank 14f370010fd5049_10 | $fill in the blank 14f370010fd5049_11 | $fill in the blank 14f370010fd5049_12 |
2. Based on the results disclosed by the differential analysis, should the proposal to operate a retail store 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 4002acfec00b06f_2
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