Accounting
27th Edition
ISBN: 9781337272094
Author: WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher: Cengage Learning,
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Question
Chapter 25, Problem 25.1BPR
a)
To determine
Opportunity Cost: Opportunity cost refers to the forgone revenue which could have been generated through an alternative use of the assets.
Differential Analysis: Differential analysis refers to the analysis of differential revenue that could be gained or differential cost that could be incurred from the available alternative options of business
To Prepare: The differential analysis of Company CD as on July 1, for given alternatives.
b)
To determine
To Deicide: The proposal to be accepted on the basis of differential analysis.
c)
To determine
To Calculate: The total estimated income from the operation of warehouse for 14 years.
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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. Alternatively, the company could use the funds to invest in $148,600 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
$148,600
Life of store equipment
16 years
Estimated residual value of store equipment
$18,300
Yearly costs to operate the warehouse, excluding depreciation of equipment
$55,900
Yearly expected revenues—years 1-8
75,300
Yearly expected revenues—years 9-16
69,800
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". If required, use a minus sign to indicate a loss.…
Differential Analysis Involving Opportunity Costs
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 $148,600 of 5% 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
$148,600
Life of store equipment
16 years
Estimated residual value of store equipment
$17,400
Yearly costs to operate the warehouse, excluding depreciation of equipment
depreciation of store equipment
$56,900
Yearly expected revenues—years 1-8
75,300
Yearly expected revenues—years 9-16
69,100
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…
Differential Analysis Involving Opportunity Costs
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…
Chapter 25 Solutions
Accounting
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