Question
Please explain how you got each answer On August 1, Rantoul Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate
Please explain how you got each answer
On August 1, Rantoul 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 $152,000 of 7% 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 $152,000
Life of store equipment 16 years
Estimated residual value of store equipment $12,800
Yearly costs to operate the store, excluding depreciation of store equipment $60,120
Yearly expected revenuesyears 18 $86,000 Yearly expected revenuesyears 916 $72,700
Required:
1. Prepare a differential analysis as of August 1 presenting the proposed operation of the store for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.
2. Based on the results disclosed by the differential analysis, should the proposal be accepted?
3. If the proposal is accepted, what would be the total estimated income from operations of the store for the 16 years?
Instructions On August 1 Rantoul Stores nc is conso enng easing building and purchasing he necessary equipment to operate a retail store. Alternative the company could use the unds o n est in S 52 000 o 7% U Treasury bonds that mature n 16 years. The bonds coukd be pucased al face val The ellcwing dala haw bnen asseible Cost of store equipment Life of store equipment Estimated resicual value of store equipment Yearly costs to operate the store, excluding depreclation of stcre equipment Yearly expected revenues-years 1-9 Yeary expected revenues-years -16 $152,000 16 years $12,800 $60,120 $86,000 $72.700 Required: 1. Prepare a differential analysis es of August 1 presenting the proposed operstion of the stors for the 16 years (Aiternative t) ss compared with investing in US. Treasuny bonds (Aternaive 2). Refer to the wists of Labeis and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negstive numbers use e minus aigvn. f there ia no amount or an amount is zava, enter ". A colon wW automaticaly appear if required. 2. Based on the resuits disclosed by the differential analysis, shouid the proposal be accepted? 3. If the proposal is accepted, what wond be the total estinsled incone from operstions of the store for the 16 yearsStep by Step Solution
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