On October 1, Midway Distribution Company 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 $151,800 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		$151,800
Life of store equipment		16 years
Estimated residual value of store equipment		$18,600
Yearly costs to operate the store, excluding
	depreciation of store equipment	$55,500
Yearly expected revenuesyears 1-8		$74,200
Yearly expected revenuesyears 9-16		$70,500

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 (Alternative 1)	Invest in Bonds (Alternative 2)	Differential Effects (Alternative 2)
Revenues	$fill in the blank 73a1eff7f024035_1	$fill in the blank 73a1eff7f024035_2	$fill in the blank 73a1eff7f024035_3
Costs:
Costs to operate store	fill in the blank 73a1eff7f024035_4	fill in the blank 73a1eff7f024035_5	fill in the blank 73a1eff7f024035_6
Cost of equipment less residual value	fill in the blank 73a1eff7f024035_7	fill in the blank 73a1eff7f024035_8	fill in the blank 73a1eff7f024035_9
Profit (loss)	$fill in the blank 73a1eff7f024035_10	$fill in the blank 73a1eff7f024035_11	$fill in the blank 73a1eff7f024035_12

Feedback

Subtract the store operating costs (16 years) and the cost of the equipment less residual value from the revenues from operating the store. Determine the bond investment interest income for 16 years (principal rate time). Determine the differential effect on income of the revenues, costs, and income (loss) by subtracting alternative 2 from alternative 1. Which alternative has the most desirable effect on income?

2. Based on the results disclosed by the differential analysis, should the proposal be accepted? No

3. If the proposal is accepted, what would be the total estimated income from operations of the store for the 16 years?