Differential Analysis for a Lease or Sell Decision

Burlington Construction Company is considering selling excess machinery with a book value of $278,200 (original cost of $399,700 less accumulated depreciation of $121,500) for $274,800, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $285,300 for five years, after which it is expected to have no residual value. During the period of the lease, Burlington Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $26,000.

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a. Prepare a differential analysis dated January 15 to determine whether Burlington Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to indicate a loss.

Differential Analysis Lease (Alt. 1) or Sell (Alt. 2) Machinery January 15

	Lease Machinery (Alternative 1)	Sell Machinery (Alternative 2)	Differential Effects (Alternative 2)
Revenues	$fill in the blank 8e8d46f51fa2fae_1	$fill in the blank 8e8d46f51fa2fae_2	$fill in the blank 8e8d46f51fa2fae_3
Costs	fill in the blank 8e8d46f51fa2fae_4	fill in the blank 8e8d46f51fa2fae_5	fill in the blank 8e8d46f51fa2fae_6
Profit (Loss)	$fill in the blank 8e8d46f51fa2fae_7	$fill in the blank 8e8d46f51fa2fae_8	$fill in the blank 8e8d46f51fa2fae_9

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b. On the basis of the data presented, would it be advisable to lease or sell the machinery?

Lease the machinerySell the machinery