Cost of equipment Life of equipment Estimated residual value of equipment Yearly costs to operate the warehouse, excluding depreciation of equipment Yearly expected revenues-years 1-7 Yearly expected revenues-years 8-14 $740,000 14 years $75,000 $175,000 $280,000 $240,000

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Differential analysis involving opportunity costs

On July 1, Coastal Distribution Company is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternative the company could use the funds to invest in $740,000 of 5% U.S Treasury bonds that mature in 14years the bonds could be purchased at face value. The following data have been assembled:

 

Instructions

1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 14yrs(Alternative 1) as compared with investing in U.S Treasury bonds

2.Based on the results disclosed by the differential analysis, should the proposal be accepted?

3. If the praposal is accepted, what is the total estimated operating income of the warehouse for the 14years?

Cost of equipment
Life of equipment
Estimated residual value of equipment
Yearly costs to operate the warehouse, excluding
depreciation of equipment
Yearly expected revenues-years 1-7
Yearly expected revenues-years 8-14
$740,000
14 years
$75,000
$175,000
$280,000
$240,000
Transcribed Image Text:Cost of equipment Life of equipment Estimated residual value of equipment Yearly costs to operate the warehouse, excluding depreciation of equipment Yearly expected revenues-years 1-7 Yearly expected revenues-years 8-14 $740,000 14 years $75,000 $175,000 $280,000 $240,000
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