Matrix Construction Company is considering selling excess machinery with a book value of $75,000 (original cost of $200,000 less accumulated depreciation of $125,000) for $60,000 less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $75,000 for five years, after which it is expected to have no residual value. During the period of the lease, Matrix Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $21,500.
a. Prepare a differential analysis dated May 25 to determine whether Matrix should lease (Alternative 1) or sell (Alternative 2) the machinery.
b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain.