aptep 25 Differential Analysis, Product Pricing, and Activity-Based Costing Problems: Series A OBJ. 1 1. Income from investing in bonds $172,800 PR 25-1A Differential analysis involving opportunity costs On October 1, White Way Stores Inc. is considering leasing a bu company could use y necessary equipment to operate a retail store. Alternatively, the con the funds to invest in $180,000 of 6% US, T bonds could be purchased at face value. The following data have been ass the reasury bonds that mature in 16 years. The assembled: Cost of store equipment Life of store equipment Estimated residual value of store equipment Yearly costs to operate the store, excluding Excel $180,000 $15,000 depreciation of store equipment Yearly expected revenues-years 1-8 Yearly expected revenues-years 9-16 $58,000 $85,000 $73,000 Instructions 1. Prepare a differential analysis as of October 1 presenting the proposed operation o 2. Based on the results disclosed by the differential analysis, should the proposal be 3. If the proposal is accepted, what would be the total estimated income from operations the store for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). accepted? of the store for the 16 years? 1. Differential Analysis Operate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2) October 1 Operate Retail Store (Alternative 1) Differential Effect in Bonds (Alternative 2) on Income (Alternative 2) Revenues Costs Costs to operate retail store Cost of equipment less residual value Income (loss) 26 27 2 28 29 The proposal to operate the retail store should be Estimated Income from Operations 31 3. Total estimated revenue from operating store Total estimated expenses to operate store Cost to operate store, excluding depreciation Cost of store equipment less residual value 35 Total estimated income from operating store 37 38