Granite Construction Company is considering selling excess machinery with a book value of $175,000 (original cost of $315,000 less accumulated depreciation of $140,000) for $180,000, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $200,000 for four years, after which it is expected to have no residual value. During the period of the lease, Granite Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $34,400.

Senior Construction Management is asking the accounting team to prepare and present, during a meeting, a differential analysis, dated November 7 to determine whether Granite should lease (Alternative 1) or sell (Alternative 2) the machinery.

Differential Analysis
Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2)
November 7
	Lease Machinery (Alternative 1)	Sell Machinery (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$200,000	$180,000	$20,000
Costs	-34,400	-9,000	25,400
Income (Loss)	$165,000	$171,000	$5,400

1. Define differential analysis and discuss its importance in management decision making.
2. On the basis of the data presented, would it be advisable to lease or sell the machinery?
3. How will you advise the senior level managers, in the meeting?