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 $149,600 of 5% U.S. bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of equipment Life of equipment Estimated residual value of equipment Yearly costs to operate the warehouse, excluding depreciation of equipment Yearly expected revenues-years 1-8 Yearly expected revenues-years 9-16 Required: Differential revenue from alternatives: Revenue from operating warehouse Revenue from investment in bonds Differential revenue from operating warehouse ✓ $149,600 16 years $27,500 1. Prepare a differential analysis report of the proposed operation of the warehouse for the 16 years as compared with present conditions. Five Star Proposal to Operate Warehouse Differential cost of alternatives: Costs to operate warehouse Cost of equipment less residual value Differential cost of operating warehouse Differential income from operating warehouse $56,200 86,000 72,100 1,264,800✔ 119,680 ✔ X 1,145,120 ✔

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 $149,600 of 5% U.S. bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of equipment Life of equipment Estimated residual value of equipment Yearly costs to operate the warehouse, excluding depreciation of equipment Yearly expected revenues-years 1-8 Yearly expected revenues-years 9-16 Required: Differential revenue from alternatives: Revenue from operating warehouse Revenue from investment in bonds Differential revenue from operating warehouse ✓ $149,600 16 years $27,500 1. Prepare a differential analysis report of the proposed operation of the warehouse for the 16 years as compared with present conditions. Five Star Proposal to Operate Warehouse Differential cost of alternatives: Costs to operate warehouse Cost of equipment less residual value Differential cost of operating warehouse Differential income from operating warehouse $56,200 86,000 72,100 1,264,800✔ 119,680 ✔ X 1,145,120 ✔

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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