Question
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
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 $151,300 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 | $151,300 | |
Life of store equipment | 16 years | |
Estimated residual value of store equipment | $18,400 | |
Yearly costs to operate the store, excluding | ||
depreciation of store equipment | $56,600 | |
Yearly expected revenuesyears 1-8 | $74,900 | |
Yearly expected revenuesyears 9-16 | $69,600 |
Required:
1. Prepare a differential analysis as of October 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) | |||
October 1 | |||
Operate Retail Store (Alternative 1) | Invest in Bonds (Alternative 2) | Differential Effect on Income (Alternative 2) | |
Revenues | $fill in the blank ad46ae0b7f88fdb_1 | $fill in the blank ad46ae0b7f88fdb_2 | $fill in the blank ad46ae0b7f88fdb_3 |
Costs: | |||
Costs to operate store | fill in the blank ad46ae0b7f88fdb_4 | fill in the blank ad46ae0b7f88fdb_5 | fill in the blank ad46ae0b7f88fdb_6 |
Cost of equipment less residual value | fill in the blank ad46ae0b7f88fdb_7 | fill in the blank ad46ae0b7f88fdb_8 | fill in the blank ad46ae0b7f88fdb_9 |
Income (Loss) | $fill in the blank ad46ae0b7f88fdb_10 | $fill in the blank ad46ae0b7f88fdb_11 | $fill in the blank ad46ae0b7f88fdb_12 |
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? $fill in the blank 6df649faa029006_2
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started