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Correct the one with a red X Differential Analysis involving Opportunity Costs On July 1. Coastal Distribution Company is considering leasing a building and buying
Correct the one with a red X
Differential Analysis involving Opportunity Costs On July 1. Coastal Distribution Company is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $740,000 of 5% U.S. Treasury bonds that mature in 14 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $740,000 Life of store equipment 14 years Estimated residual value of store equipment $75,000 Yearly costs to operate the warehouse, excluding depreciation of store equipment $175,000 Yearly expected revenues--years 1-7 $200.000 Yearly expected revenues-years 8-14 $240,000 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 14 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "o". For those bows in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Operate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2) July 1 Operate Warehouse (Alternative 1) Invest in Bonds (Alternative 2) Different effect on Income (Alternative 2) Revenues 3640,000 518.000 2.132.000 Costs Costs to operate warehouse 2.450.000 Cost of equipment les residual value 525.000
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