Differential Analysis Involving Opportunity Costs On July 1, Coastal 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 $149,600 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 $149,600 Life of store equipment Estimated residual value of store equipment 16 years $17,500 Yearly costs to operate the warehouse, excluding depreciation of equipment $57,000 74,300 69,600 Yearly expected revenues-years 1-8 Yearly expected revenues-years 9-16 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss. Differential Analysis Operate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2) Revenues July 1 Operate Warehouse Invest in Bonds Differential Effects (Alternative 1) (Alternative 2) (Alternative 2) 1,152,000 X 143,424 X -1,008,576 X Costs: Costs to operate warehouse Cost of equipment less residual value -912,000 -132,100 0 912,000 0 132,100 Profit (Loss) 107,900 X 143,424 X 35,524 X Feedback Check My Work 1. Subtract the warehouse costs (14 years) and the cost of the equipment less the residual value from the revenues from operating the warehouse. Determine the bond investment interest income for 14 years (principal x rate x time). Determine the differential effect on income of the revenues, costs, and profit (loss) by subtracting alternative 1 from alternative 2. Which alternative has the most desirable effect on income? 2. Based on the results disclosed by the differential analysis, should the proposal be accepted? Yes X 3. If the proposal is accepted, what is the total estimated operating income of the warehouse for 16 years? $-107,900 X