8

eBook On August 1, Rantoul Stores Inc. is considering leasing a buiding and purchasing the necessary equipment to operate a retail store, Alternatively, the 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 value. 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 Yearty 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 Operate Invest in Differential Retail Bonds Effects I (Alternative 1) (Alternative 2) (Alternative 2) Revenues 5.400,000 600,000 -4,100,000 COSES Costs to operate store 950.000 X 0 950,000 X Cost of equipment less residual value 3,000,000 X 0 3,000,000 X Pront (loss) 1,450,000 600,000 .850,00