Differential Analysis for a Lease or Sell Decision

Inman Construction Company is considering selling excess machinery with a book value of $280,900 (original cost of $401,900 less accumulated depreciation of $121,000) for $278,000, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $286,500 for five years, after which it is expected to have no residual value. During the period of the lease, Inman Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,600.

a. Prepare a differential analysis, dated January 3, 2014, to determine whether Inman should lease (Alternative 1) or sell (Alternative 2) the machinery.

Differential Analysis
Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2)
January 3, 2014
		Lease Machinery (Alternative 1)		Sell Machinery (Alternative 2)		Differential Effect on Income (Alternative 2)
Revenues		$		$		$
Costs
Income (Loss)		$		$		$

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