Differential Analysis for a Lease-or-Sell Decision

Sure-Bilt Construction Company is considering selling excess machinery with a book value of $283,600 (original cost of $401,600 less accumulated depreciation of $118,000) for $277,100, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $283,900 for five years, after which it is expected to have no residual value. During the period of the lease, Sure-Bilt Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,000.

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

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