Differential Analysis Involving Opportunity Costs On October 1, White Way 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 $180,000 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 $180,000 Life of store equipment 16 years Estimated residual value of store equipment $15,000 Yearly costs to operate the store, excluding depreciation of store equipment $58,000 Yearly expected revenues-years 1-8 $85,000 Yearly expected revenues-years 9-16 $73,000 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 "O". 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 Invest Differential Retail Store in Bonds Effects (Alternative 1) (Alternative 2) (Alternative 2) Revenues 1,264,000 172,800 $ -1,091,200 Costs: Costs to operate store 928,000 X 0 -928,000 0 Cost of equipment less residual value 165,000 X -165,000 X Profit (loss) 171,000 172,800 1,800 Feedback Check My Work Subtract the store operating costs (16 years) and the cost of the equipment less residual value from the revenues from operating the store. Determine the bond investment interest income for 16 years (principal x rate x time). Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 2 from alternative 1. Which alternative has the most desirable effect on income? 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? 171,000