Differential Analysis for a Lease-or-Sell Decision

Inman Construction Company is considering selling excess machinery with a book value of $279,300 (original cost of $399,400 less accumulated depreciation of $120,100) for $277,000, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $285,000 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 $24,800.

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a. Prepare a differential analysis, dated May 25 to determine whether Inman should lease (Alternative 1) or sell (Alternative 2) the machinery. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2) May 25

	Lease Machinery (Alternative 1)	Sell Machinery (Alternative 2)	Differential Effects (Alternative 2)
Revenues	$fill in the blank d88bbc029037fd1_1	$fill in the blank d88bbc029037fd1_2	$fill in the blank d88bbc029037fd1_3
Costs	fill in the blank d88bbc029037fd1_4	fill in the blank d88bbc029037fd1_5	fill in the blank d88bbc029037fd1_6
Profit (loss)	$fill in the blank d88bbc029037fd1_7	$fill in the blank d88bbc029037fd1_8	$fill in the blank d88bbc029037fd1_9

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Subtract the lease costs from the lease revenues. Subtract the sell machinery costs from the sell machinery revenues. Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 1 from alternative 2.

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

Lease the machinerySell the machinerySell the machinery

The net

gainlossgain

from selling is $fill in the blank f8a06afc9fe2f96_3.