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.

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Differential Analysis Involving Opportunity Costs On August 1, Rantoul Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternative company could use the funds to invest in $1,000,000 of 4% U.S. Treasury bonds that mature in 15 years. The bonds could be purchased at face The following data have been assembled: Cost of store equipment $1,000,000 Life of store equipment 15 years Estimated residual value of store equipment $50,000 Yearly costs to operate the store, excluding depreciation of store equipment $200,000 Yearly expected revenues-years 1-6 $300,000 Yearly expected revenues-years 7-15 $400,000 Required: 1. Prepare a differential analysis as of August 1 presenting the proposed operation of the store for the 15 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". Differential Analysis Operate Retail (Alt. 1) or Invest in Bonds (Alt. 2) August 1 Invest…

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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 cost