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On October 1, Matrix Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company
On October 1, Matrix Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $149,500 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 store equipment Life of store equipment Estimated residual value of store equipment $149,500 16 years $18,700 Yearly costs to operate the store, excluding depreciation of store equipment $56,800 Yearly expected revenues-years 1-8 Yearly expected revenues-years 9-16 $75,000 $69,800 Required: 1. Prepare a differential analysis as of October 1 to determine whether to Operate Retail Store (Alternative 1) or Invest in Bonds (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Operate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2) October 1 Operate Retail Store Invest in Bonds Differential Effects Revenues Costs: Costs to operate store Cost of equipment less residual value Profit (loss) (Alternative 1) (Alternative 2) (Alternative 2) 000 1000 000
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