Chapter 25 Homework PR 25-1A Differential analysis involving opportunity costs OBJ. 1 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 $180,000 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: $180,000 16 years $15,000 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 $58,000 $85,000 $73,000 Instructions 1. 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). 2. Based on the results disclosed by the differential analysis, should the proposal be accepted? PR 25-4A Differential analysis for further processing OBJ. 1 The management of Dominican Sugar Company is considering whether to process further raw sugar into refined sugar. Refined sugar can be sold for $2.20 per pound, and raw sugar can be sold without further processing for $1.40 per pound. Raw sugar is produced in batches of 42,000 pounds by processing 100,000 pounds of sugar cane, which costs $0.35 per pound of cane. Refined sugar will require additional processing costs of $0.50 per pound of raw sugar, and 1.25 pounds of raw sugar will produce 1 pound of refined sugar. Instructions 1. Prepare a differential analysis as of March 24 to determine whether to sell raw sugar (Alternative 1) or process further into refined sugar (Alternative 2). Briefly report your recommendations