Differential Analysis Involving Opportunity Costs

On October $1,$ 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 $$149,100$ 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 $$149,100$

Life of store equipment $16$ years

Estimated residual value of store equipment $$18,500$

Yearly costs to operate the store, excluding

depreciation of store equipment $$56,800$

Yearly expected revenues$$years $1-8$ $$75,000$

Yearly expected revenues$$years $9-16$ $$70,100$

Required:

Question Content Area

$1.$ Prepare a differential analysis as of October $1$ to determine whether to Operate Retail Store $($Alternative $1)$ or Invest in Bonds $($Alternative $2).$ If an amount is zero, enter zero $"0".$ For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential Analysis

Operate Retail Store $($Alt$.1)$ or Invest in Bonds $($Alt$.2)$

October $1$

Operate

Retail Store

$($Alternative $1)$ Invest

in Bonds

$($Alternative $2)$ Differential

Effects

$($Alternative $2)$

Revenues $fill in the blank $0$f$22$d$505603503$c$\_1$

$fill in the blank $0$f$22$d$505603503$c$\_2$

$fill in the blank $0$f$22$d$505603503$c$\_3$

Costs:

Costs to operate store fill in the blank $0$f$22$d$505603503$c$\_4$

fill in the blank $0$f$22$d$505603503$c$\_5$

fill in the blank $0$f$22$d$505603503$c$\_6$

Cost of equipment less residual value fill in the blank $0$f$22$d$505603503$c$\_7$

fill in the blank $0$f$22$d$505603503$c$\_8$

fill in the blank $0$f$22$d$505603503$c$\_9$

Profit $($loss$)$ $fill in the blank $0$f$22$d$505603503$c$\_10$

$fill in the blank $0$f$22$d$505603503$c$\_11$

$fill in the blank $0$f$22$d$505603503$c$\_12$

Question Content Area

$2.$ Based on the results disclosed by the differential analysis, should the proposal be accepted?

No

$3.$ If the proposal is accepted, what would be the total estimated income from operations of the store for the $16$ years?

$fill in the blank $84$bfecffdff$5$f$90\_2$

$121,400$