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on August 1st, Rantoul Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store Chapter 24 Differential Analysis
on August 1st, Rantoul Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store Chapter 24 Differential Analysis and Product Pricing 1251 : Series A PR 24-1A Differential analysis involving opportunity costs On August 1, Rantoul Stores Inc. is considering leasing a building and purchasing the necessary equipment to $1,000,000 of 4% U.S. Treasury bonds that mature in 15 years. The bonds could be purchased at face value. The following data have been assembled: Obj. 1 0 operate a retail store. Alternatively, the company could use the funds to invest in Cost of store equipment Life of store equipment Estimated residual value of store equipment Yearly costs to operate the store, excluding $1,000,000 15 years $50,000 depreciation of store equipment Yearly expected revenues-years 1-6 Yearly expected revenues-years 7-15 $200,000 $300,000 $400,000 Instructions 1. Prepare a differential analysis as of August 1 presenting the proposed operation of the store for the 15 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). 2. Based on the results disclosed by the differential analysis, should the proposal be accepted? 3. If the proposal is accepted, what would be the total estimated income from operations of the store for the 15 years
on August 1st, Rantoul Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store
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