PROBLEM IV

Lease or sell decision

Haslam Corporation is considering selling excess machinery with a book value of $200,000 (original cost of $325,000 less accumulated depreciation of $125,000) for $140,000 less a 10% brokerage commission. Alternatively, the machinery can be leased for a total of $165,000 for five years, after which it is expected to have no residual value. During the period of the lease, Haslam Corporations costs of repairs, insurance, and property tax expenses are expected to be $35,000.

a. Prepare a differential analysis report, dated January 3 of the current year, for the lease or sell decision.

b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain.