On July 1, Midway Distribution Company 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 $150,400 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 $150,400 Life of store equipment 16 years Estimated residual value of store equipment $18,900 Yearly costs to operate the warehouse, excluding depreciation of equipment depreciation of store equipment $56,200 Yearly expected revenues—years 1-8 74,600 Yearly expected revenues—years 9-16 70,500 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential AnalysisOperate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2)July 1 Operate Warehouse (Alternative 1) Invest in Bonds (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $fill in the blank b1eb38f8503801d_1 $fill in the blank b1eb38f8503801d_2 $fill in the blank b1eb38f8503801d_3 Costs: Costs to operate warehouse fill in the blank b1eb38f8503801d_4 fill in the blank b1eb38f8503801d_5 fill in the blank b1eb38f8503801d_6 Cost of equipment less residual value fill in the blank b1eb38f8503801d_7 fill in the blank b1eb38f8503801d_8 fill in the blank b1eb38f8503801d_9 Income (Loss) $fill in the blank b1eb38f8503801d_10 $fill in the blank b1eb38f8503801d_11 $fill in the blank b1eb38f8503801d_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 is the total estimated income from operations of the warehouse for the 16 years? $fill in the blank d2f080073fdb04c_2

On July 1, Midway Distribution Company 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 $150,400 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 $150,400 Life of store equipment 16 years Estimated residual value of store equipment $18,900 Yearly costs to operate the warehouse, excluding depreciation of equipment depreciation of store equipment $56,200 Yearly expected revenues—years 1-8 74,600 Yearly expected revenues—years 9-16 70,500 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential AnalysisOperate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2)July 1 Operate Warehouse (Alternative 1) Invest in Bonds (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $fill in the blank b1eb38f8503801d_1 $fill in the blank b1eb38f8503801d_2 $fill in the blank b1eb38f8503801d_3 Costs: Costs to operate warehouse fill in the blank b1eb38f8503801d_4 fill in the blank b1eb38f8503801d_5 fill in the blank b1eb38f8503801d_6 Cost of equipment less residual value fill in the blank b1eb38f8503801d_7 fill in the blank b1eb38f8503801d_8 fill in the blank b1eb38f8503801d_9 Income (Loss) $fill in the blank b1eb38f8503801d_10 $fill in the blank b1eb38f8503801d_11 $fill in the blank b1eb38f8503801d_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 is the total estimated income from operations of the warehouse for the 16 years? $fill in the blank d2f080073fdb04c_2

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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Question

Differential Analysis Involving Opportunity Costs

Cost of store equipment	$150,400
Life of store equipment	16 years
Estimated residual value of store equipment	$18,900
Yearly costs to operate the warehouse, excluding depreciation of equipment
	depreciation of store equipment	$56,200
Yearly expected revenues—years 1-8	74,600
Yearly expected revenues—years 9-16	70,500

Required:

1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential AnalysisOperate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2)July 1

	Operate Warehouse (Alternative 1)	Invest in Bonds (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$fill in the blank b1eb38f8503801d_1	$fill in the blank b1eb38f8503801d_2	$fill in the blank b1eb38f8503801d_3
Costs:
Costs to operate warehouse	fill in the blank b1eb38f8503801d_4	fill in the blank b1eb38f8503801d_5	fill in the blank b1eb38f8503801d_6
Cost of equipment less residual value	fill in the blank b1eb38f8503801d_7	fill in the blank b1eb38f8503801d_8	fill in the blank b1eb38f8503801d_9
Income (Loss)	$fill in the blank b1eb38f8503801d_10	$fill in the blank b1eb38f8503801d_11	$fill in the blank b1eb38f8503801d_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 is the total estimated income from operations of the warehouse for the 16 years?
$fill in the blank d2f080073fdb04c_2

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