Differential Analysis Involving Opportunity Cost:

On July 1, Midway Distribution Company is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively , the company could use the funds to invest in $148,000 of 6% U.S Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled:

Cost of store equipment. $148,000

Life of store Equipment. 16 years

estimated residual value of store equipment. $18,400

yearly cost to operate the warehouse,excluding. depreciation of equipment.

Depreciation Of store equipment. $56,500

Yearly expected revenues-years 1-8. 74,200

Yearly expected revenues-years 9-16 70,900

Required:

1 Prepare a differential analysis as of july 1 presenting the proposed operation of the warehouse for the 16 years (alternative1) as compared with investing in U.S. Treasury bonds(alternitive2). If an amount is zero, enter 0. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis operate warehouse(Alt.1)

Or Invest in Bonds (Alt.2)

Operate warehOuse (Alternative1). Invest in Bonds. (Alternative 2). Differentail Effecct on income Alt2

Revenues. $. $. $

Cost:

Cost to operate warehouse $. $. $

Cost of equipment less residual value $. $. $

Income (Loss). $. $. $

2 based on the results disclosed by the differential analysis, should the proposal to operate a retail store be accepted?

3. If the proposal is accepted, what is the total estimated. Income. From oprelations of the warehouse for the 16 years?