Inman Construction Company is considering selling excess machinery with a book value of $279,300 (original cost of $400,900 less accumulated depreciation of $121,600) for $274,300, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $283,200 for five years, after which it is expected to have no residual value. During the period of the lease, Inman Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,100. a. Prepare a differential analysis, dated May 25 to determine whether Inman should lease (Alternative 1) or sell (Alternative 2) the machinery. For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2) May 25 Differential Effect Lease Machinery Sell Machinery on Income (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs Income (Loss) Feedback TCheck My Work Subtract the lease costs from the lease revenues. Subtract the sell machinery costs from the sell machinery revenues. Determine the differential effect on income of the revenues, costs, and income (k s) by subtracting alternative 1 from alternative 2. b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain. Sell the machinery The net gain Y from selling is s
Inman Construction Company is considering selling excess machinery with a book value of $279,300 (original cost of $400,900 less accumulated depreciation of $121,600) for $274,300, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $283,200 for five years, after which it is expected to have no residual value. During the period of the lease, Inman Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,100. a. Prepare a differential analysis, dated May 25 to determine whether Inman should lease (Alternative 1) or sell (Alternative 2) the machinery. For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2) May 25 Differential Effect Lease Machinery Sell Machinery on Income (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs Income (Loss) Feedback TCheck My Work Subtract the lease costs from the lease revenues. Subtract the sell machinery costs from the sell machinery revenues. Determine the differential effect on income of the revenues, costs, and income (k s) by subtracting alternative 1 from alternative 2. b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain. Sell the machinery The net gain Y from selling is s
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![### Inman Construction Company Case Study
Inman Construction Company is evaluating whether to sell or lease excess machinery. The machinery has a book value of $279,300 (original cost of $400,900 with accumulated depreciation of $121,600). It can be sold for $274,300 minus a 5% brokerage commission or leased for five years for a total of $283,200. At the end of the lease, the machinery will have no residual value. Expected costs for repairs, insurance, and property tax during the lease period are $25,100.
#### Differential Analysis (May 25)
**Objective**: Determine whether Inman should lease (Alternative 1) or sell (Alternative 2) the machinery. Use negative signs for subtracted amounts.
| | Lease Machinery (Alternative 1) | Sell Machinery (Alternative 2) | Differential Effect on Income (Alternative 2) |
|----------------------------|---------------------------------|--------------------------------|----------------------------------------------|
| **Revenues** | $ | $ | $ |
| **Costs** | $ | $ | $ |
| **Income (Loss)** | $ | $ | $ |
**Instructions**:
- Subtract lease costs from lease revenues.
- Subtract selling costs from sale revenues.
- Determine the differential effect by subtracting outcomes of Alternative 1 from Alternative 2.
#### Feedback
- Perform calculations as instructed above.
#### Decision Analysis
**Conclusion**: Based on the data, it is advisable to sell the machinery.
- **Sell the machinery**: Indicator suggests this option.
- **Net gain from selling**: $ [Space for input]
This analysis helps assess the financial implications of leasing versus selling, providing clarity on the optimal decision to enhance profitability.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0b25dda4-3b1e-4b53-b423-003310ecd14a%2Fea96901f-b491-4572-94b8-36db0a43bdd7%2F4v7rsgw_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Inman Construction Company Case Study
Inman Construction Company is evaluating whether to sell or lease excess machinery. The machinery has a book value of $279,300 (original cost of $400,900 with accumulated depreciation of $121,600). It can be sold for $274,300 minus a 5% brokerage commission or leased for five years for a total of $283,200. At the end of the lease, the machinery will have no residual value. Expected costs for repairs, insurance, and property tax during the lease period are $25,100.
#### Differential Analysis (May 25)
**Objective**: Determine whether Inman should lease (Alternative 1) or sell (Alternative 2) the machinery. Use negative signs for subtracted amounts.
| | Lease Machinery (Alternative 1) | Sell Machinery (Alternative 2) | Differential Effect on Income (Alternative 2) |
|----------------------------|---------------------------------|--------------------------------|----------------------------------------------|
| **Revenues** | $ | $ | $ |
| **Costs** | $ | $ | $ |
| **Income (Loss)** | $ | $ | $ |
**Instructions**:
- Subtract lease costs from lease revenues.
- Subtract selling costs from sale revenues.
- Determine the differential effect by subtracting outcomes of Alternative 1 from Alternative 2.
#### Feedback
- Perform calculations as instructed above.
#### Decision Analysis
**Conclusion**: Based on the data, it is advisable to sell the machinery.
- **Sell the machinery**: Indicator suggests this option.
- **Net gain from selling**: $ [Space for input]
This analysis helps assess the financial implications of leasing versus selling, providing clarity on the optimal decision to enhance profitability.
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