25.5

Lease or Sell Bullwinkle Company owns equipment with a cost of $365,900 and accumulated depreciation of $53,000 that can be sold for $277,500, less a 5% sales commission. Alternatively, Bullwinkle Company can lease the equipment for three years for a total of $288,500, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Bullwinkle Company on the equipment would total $15,400 over the three year lease. a. Prepare a differential analysis on August 7 as to whether Bullwinkle Company should lease (Alternative 1) or sell (Alternative 2) the equipment. If required, use a minus sign to indicate a loss. Differential Analysis Lease Equipment (Alt. 1) or Sell Equipment (Alt. 2) August 7 Lease Sell Differential Equipment Equipment Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs Profit (Loss) b. Should Bullwinkle Company lease (Alternative 1) or sell (Alternative 2) the equipment? Sell the equipment