Differential Analysis Involving Opportunity Costs

On August 1, Matrix Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $151,200 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		$151,200
Life of store equipment		16 years
Estimated residual value of store equipment		$17,900
Yearly costs to operate the store, excluding
	depreciation of store equipment	$55,200
Yearly expected revenuesyears 1-8		74,500
Yearly expected revenuesyears 9-16		69,700

Required:

1. Prepare a differential analysis as of August 1 presenting the proposed operation of the store for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter zero "0".

Differential Analysis
Operate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2)
August 1
	Operate Retail Store (Alternative 1)	Invest in Bonds (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$	$	$
Costs:
Costs to operate store
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 would be the total estimated income from operations of the store for the 16 years? $