On August 1, Matrix Stores Inc. is considering leasing a building and purchasing the necessary equipment to

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On August 1, Matrix Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $150,000 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 Life of store equipment Estimated residual value of store equipment Yearly costs to operate the

1. Prepare a differential analysis as of August 1, 2012, presenting the proposed operation of the store for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2).
2. Based on the results disclosed by the differential analysis, should the proposal be accepted?
3. If the proposal is accepted, what would be the total estimated income from operations of the store for the 16 years?

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Accounting

ISBN: 9780538475006

24th Edition

Authors: Carl S Warren, James M Reeve, Jonathan Duchac

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