Question
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
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 $149,900 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 | $149,900 | |
Life of store equipment | 16 years | |
Estimated residual value of store equipment | $18,000 | |
Yearly costs to operate the store, excluding | ||
depreciation of store equipment | $55,900 | |
Yearly expected revenuesyears 1-8 | $75,300 | |
Yearly expected revenuesyears 9-16 | $70,500 |
Required:
Question Content Area
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.
Operate Retail Store (Alternative 1) | Invest in Bonds (Alternative 2) | Differential Effects (Alternative 2) | |
Revenues | $ | $ | $ |
Costs: | |||
Costs to operate store | |||
Cost of equipment less residual value | |||
Profit (loss) | $ | $ |
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2. Based on the results disclosed by the differential analysis, should the proposal be accepted?
Yes No
3. If the proposal is accepted, what would be the total estimated income from operations of the store for the 16 years? $
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