Question
Differential AnalysisInvolvingOpportunity Costs On July 1, Coastal Distribution Company is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively,
Differential AnalysisInvolvingOpportunity 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 $740,000 of 5% U.S. Treasury bonds that mature in 14 years. The bonds could be purchased at face value. The following data have been assembled:
Cost of equipment $740,000
Life of equipment 14 years
Estimated residual value of equipment $75,000
Yearly costs to operate the warehouse,
excludingdepreciation of equipment. $175,000
Yearly expected revenuesyears 1-7. $280,000
Yearly expected revenuesyears 8-14. $240,000
. a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 14 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter zero "0".
1.Differential AnalysisOperate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2)July 1
OperateWarehouse(Alternative 1) Invest in Bonds(Alternative 2) DifferentialEffect on Income(Alternative 2)
Revenues $ $ $
Costs:
Costs to operate warehouse
Cost of equipment less residual value
Income (Loss) $ $ $
2.If the proposal is accepted, what is the total estimated income from operations of the warehouse for the 14 years?
$
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