Five Star 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 $149,600 of 5% 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 equipment $149,600 Life of equipment 16 years Estimated residual value of equipment $27,400 Yearly costs to operate the warehouse, excluding depreciation of equipment $55,300 Yearly expected revenuesyears 1-8 85,100 Yearly expected revenuesyears 9-16 72,400

Required: Question Content Area

1. Prepare a differential analysis report of the proposed operation of the warehouse for the 16 years as compared with present conditions.

Five Star Proposal to Operate Warehouse blank Differential revenue from alternatives: Revenue from operating warehouse

$Revenue from operating warehouse

Revenue from investment in bonds

Revenue from investment in bonds

Differential revenue from operating warehouse

$Differential revenue from operating warehouse

Differential cost of alternatives: Costs to operate warehouse

$Costs to operate warehouse

Cost of equipment less residual value

Cost of equipment less residual value

Differential cost of operating warehouse

Differential cost of operating warehouse

Differential income from operating warehouse $

Differential income from operating warehouse

2.

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

If the proposal is accepted, what is the total estimated operating income of the warehouse for the 16 years?

$fill in the blank