Problems: Series B Obj. 1 ving the neces use the funds soods could be PR 24-1B Differential analysis involving opportunity costs 3 $525,000 On July 1, Coastal Distribution On July 1, Coastal Distribution Company is considering leasing a building and buying the sary equipment to operate a public warehouse. Alternatively, the company could use the to invest in $740,000 of 5% U.S. Treasury bonds that mature in 14 years. The bonds com purchased at face value. The following data have been assembled: $740,000 EXCEL TEMPLATE Cost of equipment 14 years Life of equipment Estimated residual value of equipment $75,000 Yearly costs to operate the warehouse, excluding depreciation of equipment $175,000 Yearly expected revenues--years 1-7 $280,000 Yearly expected revenues--years 8-14 $240,000 Instructions 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the war house for the 14 years (Alternative I) as compared with investing in U.S. Treasury bone (Alternative 2). 2. Based on the results disclosed by the differential analysis, should the proposal be accepted? 3. If the proposal is accepted, what is the total estimated income from operations of the ware. house for the 14 years? PR 24-2B Differential analysis for machine replacement proposal Obj. 1 Flint Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows: EXCEL TEMPLATE Old Machine Cost of machine, eight-year life Annual depreciation (straight-line) Annual manufacturing costs, excluding depreciation Annual nonmanufacturing operating expenses Annual revenue Current estimated selling price of the machine $38,000 4,750 12,400 2,700 32.400 12,900 New Machine Cost of machine, six-year life Annual depreciation (straight-line) Estimated annual manufacturing costs, exclusive of depreciation $57,000 9,500 3,400 Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine. Chapter 24 Differential Analysis and Product Pricing 1255 Instructions 1. Prepare a differential analysis as of November 8 comparing operations using the present machine (Alternative l) with operations using the new machine (Alternative 2). The analysis should indicate the differential income that would result over the six-year period if the new machine is acquired. List other factors that should be considered before a final decision is reached