Question
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
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 $151,200 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 | $151,200 |
Life of store equipment | 16 years |
Estimated residual value of store equipment | $17,300 |
Yearly costs to operate the warehouse, excluding depreciation of equipment | $57,000 |
Yearly expected revenuesyears 1-8 | 76,000 |
Yearly expected revenuesyears 9-16 | 69,800 |
Required:
Question Content Area
1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus sign to indicate a loss.
Operate Warehouse (Alternative 1) | Invest in Bonds (Alternative 2) | Differential Effects (Alternative 2) | |
Revenues | $fill in the blank | $fill in the blank | $fill in the blank |
Costs: | |||
Costs to operate warehouse | fill in the blank | fill in the blank | fill in the blank |
Cost of equipment less residual value | fill in the blank | fill in the blank | fill in the blank |
Profit (Loss) | $fill in the blank | $fill in the blank | $fill in the blank |
Question Content Area
2. Based on the results disclosed by the differential analysis, should the proposal be accepted?
YesNo
3. If the proposal is accepted, what is the total estimated operating income of the warehouse for 16 years? $fill in the blank 7ba50afc001004d_2
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