Differential Analysis for a Lease-or-Sell Decision

Inman Construction Company is considering selling excess machinery with a book value of $277,600 (original cost of $398,700 less accumulated depreciation of $121,100) for $277,600, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company 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, Inman Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,500.

Question Content Area

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.

	Lease Machinery (Alternative 1)	Sell Machinery (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues
Costs
Income (Loss)

The net gain from selling is $