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 $151,500 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		$151,500
Life of store equipment		16 years
Estimated residual value of store equipment		$17,000
Yearly costs to operate the store, excluding
	depreciation of store equipment	$56,600
Yearly expected revenuesyears 1-8		$74,500
Yearly expected revenuesyears 9-16		$69,900

Required:

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 82d66e01905f034_1	$fill in the blank 82d66e01905f034_2	$fill in the blank 82d66e01905f034_3
Costs:
Costs to operate store	fill in the blank 82d66e01905f034_4	fill in the blank 82d66e01905f034_5	fill in the blank 82d66e01905f034_6
Cost of equipment less residual value	fill in the blank 82d66e01905f034_7	fill in the blank 82d66e01905f034_8	fill in the blank 82d66e01905f034_9
Profit (loss)	$fill in the blank 82d66e01905f034_10	$fill in the blank 82d66e01905f034_11	$fill in the blank 82d66e01905f034_12

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

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 93560700801107b_2

2. Differential Analysis for Machine Replacement Proposal

Fontasia Printing Company is considering replacing a machine that has been used in its factory for 4 years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows:

Old Machine
Cost of machine, 10-year life	$76,000
Annual depreciation (straight-line)	7,600
Annual manufacturing costs, excluding depreciation	20,100
Annual nonmanufacturing operating expenses	5,200
Annual revenue	63,400
Current estimated selling price of machine	25,500
New Machine
Purchase price of machine, 6-year life	$102,300
Annual depreciation (straight-line)	17,050
Estimated annual manufacturing costs, excluding depreciation	5,900

Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.

Required:

1. Prepare a differential analysis as of April 30 to determine whether to Continue with Old Machine (Alternative 1) or Replace Old Machine (Alternative 2). The analysis should indicate the total differential profit that would result over the 6-year period if the new machine is acquired. 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
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
April 30
	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effects (Alternative 2)
Revenues:
Proceeds from sale of old machine	$fill in the blank eb1425f7ffcbfc1_1	$fill in the blank eb1425f7ffcbfc1_2	$fill in the blank eb1425f7ffcbfc1_3
Costs:
Purchase price	fill in the blank eb1425f7ffcbfc1_4	fill in the blank eb1425f7ffcbfc1_5	fill in the blank eb1425f7ffcbfc1_6
Annual manufacturing costs (6 yrs.)	fill in the blank eb1425f7ffcbfc1_7	fill in the blank eb1425f7ffcbfc1_8	fill in the blank eb1425f7ffcbfc1_9
Profit (loss)	$fill in the blank eb1425f7ffcbfc1_10	$fill in the blank eb1425f7ffcbfc1_11	$fill in the blank eb1425f7ffcbfc1_12