(1) Bianca is learning about differential analysis in Chapter 25 this week. She made a goal to try and go one chapter without getting mad.

However, there is something that is driving her crazy: She cant figure out what the purpose of the differential column is. She points out the example shown on page 1168. Exhibit 2 evaluates a Lease or Sell situation with total income calculated for each alternative. Clearly, leasing would provide a higher income than selling, so why do we need that stupid third column? Bianca asks aloud. I bet its just those old men accountants that have nothing better to do than waste our time with extra work.

Please summarize what differential analysis is and explain to Bianca why you think that third column might be important. Alternatively, if you totally agree with Bianca on this issue, please support your position.

(2) What is an opportunity cost? Please define the term and provide an example of an opportunity cost.