Sure-Bilt Construction Company is considering selling excess machinery with a book value of $279,500 (original cost of $400,000 less accumulated depreciation of $120,500) for $275,500, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $285,100 for five years, after which it is expected to have no residual value. During the period of the lease, Sure-Bilt Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $26,100.
a. Prepare a differential analysis, dated January 3, 2012, to determine whether Sure-Bilt should lease (Alternative 1) or sell (Alternative 2) the machinery.
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Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2) | |
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| | Lease Machinery (Alternative 1) | | | Sell Machinery (Alternative 2) | | | Differential Effect on Income (Alternative 2) | |
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