Burlington Construction Company is considering selling excess machinery with a book value of $281,600 (original cost of $402,000 less accumulated depreciation of $120,400) for $277,900, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $286,300 for five years, after which it is expected to have no residual value. During the period of the lease, Burlington Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,000. a.  Prepare a differential analysis dated January 15 to determine whether Burlington Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to indicate a loss. Differential Analysis Lease (Alt. 1) or Sell (Alt. 2) Machinery January 15   Lease Machinery (Alternative 1) Sell Machinery (Alternative 2) Differential Effects (Alternative 2) Revenues ? ? ? Costs ? ? ? Profit (Loss) ? ? ? b.  On the basis of the data presented, would it be advisable to lease or sell the machinery?

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Chapter1: Financial Statements And Business Decisions
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Differential Analysis for a Lease or Sell Decision

Burlington Construction Company is considering selling excess machinery with a book value of $281,600 (original cost of $402,000 less accumulated depreciation of $120,400) for $277,900, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $286,300 for five years, after which it is expected to have no residual value. During the period of the lease, Burlington Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,000.

a.  Prepare a differential analysis dated January 15 to determine whether Burlington Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to indicate a loss.

Differential Analysis
Lease (Alt. 1) or Sell (Alt. 2) Machinery
January 15
  Lease
Machinery
(Alternative 1)
Sell
Machinery
(Alternative 2)
Differential
Effects
(Alternative 2)
Revenues ? ? ?
Costs ? ? ?
Profit (Loss) ? ? ?

b.  On the basis of the data presented, would it be advisable to lease or sell the machinery?
 

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