CH 24-1

INSTRUCTIONS

On October 1, White Way Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $152,000 of 7% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled:

Labels
Cash flows from investing activities
Costs
Amount Descriptions
Costs to operate store
Cost of equipment less residual value
Gain on sale of investments
Income (Loss)
Loss on sale of investments
Revenues differential analysis A. Prepare a differential analysis as of October 1 presenting the proposed operation of the store for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required. FINAL

Cost of store equipment Life of store equipment Estimated residual value of store equipment Yearly costs to operate the store, excluding depreciation of store equipment Yearly expected revenues-years 1-8 Yearly expected revenues-years 9-16 $152,000 16 years $12,800 $60,120 $86,000 $72,700