On July 1, Matrix Stores Inc. 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 $148,400 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:

Line Item Description	Amount
Cost of store equipment	$148,400
Life of store equipment	16 years
Estimated residual value of equipment	$19,000
Yearly costs to operate the warehouse, excluding depreciation of equipment	$56,700
Yearly expected revenuesyears 1-8	74,100
Yearly expected revenuesyears 9-16	69,000

Required:

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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.

Differential Analysis Operate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2) July 1

Line Item Description	Operate Warehouse (Alternative 1)	Invest in Bonds (Alternative 2)	Differential Effects (Alternative 2)
Revenues	$Revenues	$Revenues	$Revenues
Costs:
Costs to operate warehouse	Costs to operate warehouse	Costs to operate warehouse	Costs to operate warehouse
Cost of equipment less residual value	Cost of equipment less residual value	Cost of equipment less residual value	Cost of equipment less residual value
Profit (Loss)	$Profit (Loss)	$Profit (Loss)	$Profit (Loss)

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1. Subtract the warehouse costs (14 years) and the cost of the equipment less the residual value from the revenues from operating the warehouse. Determine the bond investment interest income for 14 years (principal rate time). Determine the differential effect on income of the revenues, costs, and profit (loss) by subtracting alternative 1 from alternative 2. Which alternative has the most desirable effect on income?

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

YesNoNo

3. If the proposal is accepted, what is the total estimated operating income of the warehouse for 16 years? fill in the blank 1 of 1$