Differential Analysis for a Lease or Sell Decision

Steady Construction Company is considering selling excess machinery with a book value of $280,000 (original cost of $400,000 less accumulated depreciation of $120,000) for $244,000, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $255,000 for five years, after which it is expected to have no residual value. During the period of the lease, Steady Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $23,800.

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Hint(s)

a. Prepare adifferential analysis, dated April 16, 2014, to determine whether Steady should lease (Alternative 1) or sell (Alternative 2) the machinery.

Differential Analysis
Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2)
April 16, 2014
Lease Machinery (Alternative 1)	Sell Machinery (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$	$	$
Costs
Income (Loss)	$	$	$

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FollowExample Exercise 24-1. Subtract the lease costs from the lease revenues. Subtract the sell machine costs from the sell machine revenue. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 2 from alternative 1.