Five Star is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $148,700 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 equipment $148,700 Life of equipment 16 years Estimated residual value of equipment $27,100 Yearly costs to operate the warehouse, excluding depreciation of equipment $55,000 Yearly expected revenues—years 1-8 86,000 Yearly expected revenues—years 9-16 73,100 Required: 1. Prepare a differential analysis report of the proposed operation of the warehouse for the 16 years as compared with present conditions.
Five Star is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $148,700 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 equipment $148,700 Life of equipment 16 years Estimated residual value of equipment $27,100 Yearly costs to operate the warehouse, excluding depreciation of equipment $55,000 Yearly expected revenues—years 1-8 86,000 Yearly expected revenues—years 9-16 73,100 Required: 1. Prepare a differential analysis report of the proposed operation of the warehouse for the 16 years as compared with present conditions.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Five Star is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $148,700 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 equipment | $148,700 | |
| Life of equipment | 16 years | |
| Estimated residual value of equipment | $27,100 | |
| Yearly costs to operate the warehouse, excluding |
$55,000 | |
| Yearly expected revenues—years 1-8 | 86,000 | |
| Yearly expected revenues—years 9-16 | 73,100 |
Required:
1. Prepare a differential analysis report of the proposed operation of the warehouse for the 16 years as compared with present conditions.
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