Question
Differential Analysis for a Lease-or-Sell Decision Sure-Bilt Construction Company is considering selling excess machinery with a book value of $279,000 (original cost of $400,700 less
Differential Analysis for a Lease-or-Sell Decision
Sure-Bilt Construction Company is considering selling excess machinery with a book value of $279,000 (original cost of $400,700 less accumulated depreciation of $121,700) for $274,400, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $284,200 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 $25,500.
a. Prepare a differential analysis, dated May 25 to determine whether Sure-Bilt 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 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? Explain.
The net from selling is $.
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