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On October 1, White Way 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 $180,000 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 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 1-8 Yearly expected revenues-years 9-16 $180,000 16 years $15,000 $58,000 $85,000 $73,000 Instructions 1. Prepare a differential analysis as of October 1 presenting the proposed operation of the store for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). 2. Based on the results disclosed by the differential analysis, should the proposal be

On October 1, White Way 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 $180,000 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 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 1-8 Yearly expected revenues-years 9-16 $180,000 16 years $15,000 $58,000 $85,000 $73,000 Instructions 1. Prepare a differential analysis as of October 1 presenting the proposed operation of the store for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). 2. Based on the results disclosed by the differential analysis, should the proposal be

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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please read instuctions on the first picture and answer question on picture two. thanks for your help!

PR 25-1A Differential analysis involving opportunity costs OBJ. 1 On October 1, White Way 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 $180,000 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 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 1-8 Yearly expected revenues-years 9-16 $180,000 16 years $15,000 $58,000 $85,000 $73,000 Instructions 1. Prepare a differential analysis as of October 1 presenting the proposed operation of the store for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). 2. Based on the results disclosed by the differential analysis, should the proposal be accepted?
Transcribed Image Text:PR 25-1A Differential analysis involving opportunity costs OBJ. 1 On October 1, White Way 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 $180,000 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 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 1-8 Yearly expected revenues-years 9-16 $180,000 16 years $15,000 $58,000 $85,000 $73,000 Instructions 1. Prepare a differential analysis as of October 1 presenting the proposed operation of the store for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). 2. Based on the results disclosed by the differential analysis, should the proposal be accepted?
A B 1 Problem 25-1A 2 3 3 5 5 3 9 0 1 2 3 4 5 6 7 8 9 0 Question 1 C Differential Analysis Operate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2) October 1 Operate Retail Store (Alternative 1) $1,264,000 Revenues Costs: Costs to operate store Cost of equipment less residual value Income (Loss) Question 2 D Should we accept or reject to operate the retail store? Reject Correct E Invest in Bonds (Alternative 2) F Differential Effecton on Income (Alternative 2) G
Transcribed Image Text:A B 1 Problem 25-1A 2 3 3 5 5 3 9 0 1 2 3 4 5 6 7 8 9 0 Question 1 C Differential Analysis Operate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2) October 1 Operate Retail Store (Alternative 1) $1,264,000 Revenues Costs: Costs to operate store Cost of equipment less residual value Income (Loss) Question 2 D Should we accept or reject to operate the retail store? Reject Correct E Invest in Bonds (Alternative 2) F Differential Effecton on Income (Alternative 2) G
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