Pike Industries is considering selling excess machinery with a book value of $150,000 (original cost of $475,000 less accumulated depreciation of $325,000) for $72,500less a 5% brokerage commission. Alternatively, the machinery can be leased out for a total of $107,500 for five years, after which it is expected to have no residual value.During the period of the lease, Pike Industries' costs of repairs, insurance, and property tax expenses are expected to be $40,000.a. Prepare a differential analysis report for the lease or sell decision.PIKE INDUSTRIESProposal to Lease or Sell MachineryDifferential Analysis ReportDifferenti revenue from alternatives:Differential cost of alternatives:b. Based on the data presented, which is the most appropriate plan of action?

Selling of the machinery is the most appropriate alternative.

Answered: stries is considering selling excess…

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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Exercises 1. Grimstone Construction Company is considering selling excess machinery with a book value of $200,000 (original cost of $355,000 less accumulated depreciation of $155,000) for $205,000, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $225,000 for four years, after which it is expected to have no residual value. During the period of the lease, Grimstone Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $34,400. a. Prepare a differential analysis, dated November 30th to determine whether Grimstone should lease (Alternative 1) or sell (Alternative 2) the machinery. b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain.
Differential Analysis for a Lease-or-Sell Decision Inman Construction Company is considering selling excess machinery with a book value of $284,000 (original cost of $402,000 less accumulated depreciation of $118,000) for $275,000, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $283,900 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 $26,000. Question Content Area 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 AnalysisLease Machinery (Alt. 1) or Sell Machinery (Alt. 2)May 25 Lease Machinery(Alternative 1) Sell Machinery(Alternative 2) Differential Effecton…
Differential Analysis for a Lease-or-Sell Decision Rhombus Construction Company is considering selling excess machinery with a book value of $125,000 (original cost of $340,000 less accumulated depreciation of $215,000) for $102,000 less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $125,000 for 5 years, after which it is expected to have no residual value. During the period of the lease, Rhombus Construction Company’s costs of repairs, insurance, and property tax expenses are expected to be $36,500. Question Content Area a. Prepare a differential analysis, dated May 25 to determine whether Rhombus 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. b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain.
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Celestial Crane Cosmetics is considering an investment that will have the following sales, variable costs, and fixed operating costs: Year 1 Year 2 Year 3 Year 4 Sales (units) 5,500 5,200 5,700 5,820 Sales price $42.57 $43.55 $44.76 $46.79 Variable cost per unit Fixed costs, excluding depreciation Accelerated depreciation rate $22.83 $22.97 $23.45 $66,750 $68,950 $69,690 33% 45% 15% $23.87 $68,900 7% This project will require an investment of $20,000 in new equipment. The equipment will have no salvage value at the end of the project's four-year life. Celestial Crane Cosmetics pays a constant tax rate of 40%, and it has a required rate of return of 11%. When using accelerated depreciation, the project's net present value (NPV) is When using straight-line depreciation, the project's NPV is Using the depreciation method will result in the greater NPV for the project. No other firm would take on this project if Celestial Crane Cosmetics turns it down. How much should Celestial Crane…
Differential Analysis for a Lease-or-Sell Decision Sure-Bilt Construction Company is considering selling excess machinery with a book value of $281,400 (original cost of $400,900 less accumulated depreciation of $119,500) for $275,200, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $286,100 for five years, after which it is expected to have no residual value. During the period of the lease, Sure-Bilt Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $26,400. a. Prepare a differential analysis, dated May 25 to determine whether Sure-Bilt 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 Lease Machinery(Alternative 1) Sell Machinery(Alternative 2) Differential Effects(Alternative…
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Differential Analysis for a Lease-or-Sell Decision Inman Construction Company is considering selling excess machinery with a book value of $282,000 (original cost of $400,300 less accumulated depreciation of $118,300) for $277,000, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $284,500 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 $24,700. 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 Lease Machinery Sell Machinery Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs Profit…

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