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L. Prepare a differential analysis as of July 1 presenting the proposed operation of the store for the 15 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Line Item Description Revenues Costs: Differential Analysis Operate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2) July 1 Costs to operate store Cost of equipment less residual value Profit (loss) Feedback Operate Retail Store (Alternative 1) Invest in Bonds (Alternative 2) Differential Effects (Alternative 2) ✓ Check My Work Subtract the operating costs and the cost of the equipment less the residual value from the revenues from operating the store. Determine the bond investment interest income for 15 years (principal x rate x time). Determine the differential effect on income of the revenues, costs, and profit (loss) by subtracting alternative 2 from alternative 1. Which alternative has the most desirable effect on income? 2. Based on the results disclosed by the differential analysis, should the proposal be accepted? ✓ Yes 3. If the proposal is accepted, what would be the total estimated operating income of the store for the 15 years?

L. Prepare a differential analysis as of July 1 presenting the proposed operation of the store for the 15 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Line Item Description Revenues Costs: Differential Analysis Operate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2) July 1 Costs to operate store Cost of equipment less residual value Profit (loss) Feedback Operate Retail Store (Alternative 1) Invest in Bonds (Alternative 2) Differential Effects (Alternative 2) ✓ Check My Work Subtract the operating costs and the cost of the equipment less the residual value from the revenues from operating the store. Determine the bond investment interest income for 15 years (principal x rate x time). Determine the differential effect on income of the revenues, costs, and profit (loss) by subtracting alternative 2 from alternative 1. Which alternative has the most desirable effect on income? 2. Based on the results disclosed by the differential analysis, should the proposal be accepted? ✓ Yes 3. If the proposal is accepted, what would be the total estimated operating income of the store for the 15 years?

FINANCIAL ACCOUNTING
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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Differential Analysis Involving Opportunity Costs On July 1, Campus Stores Inc. 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 $1,500,000 of 2% U.S. Treasury bonds that mature in 15 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment Life of store equipment Estimated residual value of store equipment Yearly costs to operate the store, excluding depreciation of store equipment Yearly expected revenues-years 1-6 Yearly expected revenues-years 7-15 Required: $1,500,000 15 years $75,000 $320,000 $400,000 $600,000 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the store for the 15 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
Transcribed Image Text:Differential Analysis Involving Opportunity Costs On July 1, Campus Stores Inc. 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 $1,500,000 of 2% U.S. Treasury bonds that mature in 15 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment Life of store equipment Estimated residual value of store equipment Yearly costs to operate the store, excluding depreciation of store equipment Yearly expected revenues-years 1-6 Yearly expected revenues-years 7-15 Required: $1,500,000 15 years $75,000 $320,000 $400,000 $600,000 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the store for the 15 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the store for the 15 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Revenues Costs: Line Item Description Differential Analysis Operate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2) July 1 Costs to operate store Cost of equipment less residual value Profit (loss) Feedback ▼ Check My Work Operate Retail Store (Alternative 1) X Invest in Bonds (Alternative 2) Differential Effects (Alternative 2) Subtract the operating costs and the cost of the equipment less the residual value from the revenues from operating the store. Determine the bond investment interest income for 15 years (principal × rate x time). Determine the differential effect on income of the revenues, costs, and profit (loss) by subtracting alternative 2 from alternative 1. Which alternative has the most desirable effect on income? 2. Based on the results disclosed by the differential analysis, should the proposal be accepted? Yes 3. If the proposal is accepted, what would be the total estimated operating income of the store for the 15 years?
Transcribed Image Text:Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the store for the 15 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Revenues Costs: Line Item Description Differential Analysis Operate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2) July 1 Costs to operate store Cost of equipment less residual value Profit (loss) Feedback ▼ Check My Work Operate Retail Store (Alternative 1) X Invest in Bonds (Alternative 2) Differential Effects (Alternative 2) Subtract the operating costs and the cost of the equipment less the residual value from the revenues from operating the store. Determine the bond investment interest income for 15 years (principal × rate x time). Determine the differential effect on income of the revenues, costs, and profit (loss) by subtracting alternative 2 from alternative 1. Which alternative has the most desirable effect on income? 2. Based on the results disclosed by the differential analysis, should the proposal be accepted? Yes 3. If the proposal is accepted, what would be the total estimated operating income of the store for the 15 years?
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