On July 1, Matrix Stores Inc. is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $148,800 of 5% 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 $148,800 Life of store equipment 16 years Estimated residual value of store equipment $19,000 Yearly costs to operate the warehouse, excluding depreciation of equipment depreciation of store equipment $56,500 Yearly expected revenues—years 1-8 74,200 Yearly expected revenues—years 9-16 69,800 Required: Question Content Area 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential AnalysisOperate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2)July 1 Operate Warehouse (Alternative 1) Invest in Bonds (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $fill in the blank ff488efe9fb0045_1 $fill in the blank ff488efe9fb0045_2 $fill in the blank ff488efe9fb0045_3 Costs: Costs to operate warehouse fill in the blank ff488efe9fb0045_4 fill in the blank ff488efe9fb0045_5 fill in the blank ff488efe9fb0045_6 Cost of equipment less residual value fill in the blank ff488efe9fb0045_7 fill in the blank ff488efe9fb0045_8 fill in the blank ff488efe9fb0045_9 Income (Loss) $fill in the blank ff488efe9fb0045_10 $fill in the blank ff488efe9fb0045_11 $fill in the blank ff488efe9fb0045_12 Question Content Area 2. Based on the results disclosed by the differential analysis, should the proposal to operate a retail store be accepted? 3. If the proposal is accepted, what is the total estimated income from operations of the warehouse for the 16 years?

On July 1, Matrix Stores Inc. is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $148,800 of 5% 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 $148,800 Life of store equipment 16 years Estimated residual value of store equipment $19,000 Yearly costs to operate the warehouse, excluding depreciation of equipment depreciation of store equipment $56,500 Yearly expected revenues—years 1-8 74,200 Yearly expected revenues—years 9-16 69,800 Required: Question Content Area 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential AnalysisOperate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2)July 1 Operate Warehouse (Alternative 1) Invest in Bonds (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $fill in the blank ff488efe9fb0045_1 $fill in the blank ff488efe9fb0045_2 $fill in the blank ff488efe9fb0045_3 Costs: Costs to operate warehouse fill in the blank ff488efe9fb0045_4 fill in the blank ff488efe9fb0045_5 fill in the blank ff488efe9fb0045_6 Cost of equipment less residual value fill in the blank ff488efe9fb0045_7 fill in the blank ff488efe9fb0045_8 fill in the blank ff488efe9fb0045_9 Income (Loss) $fill in the blank ff488efe9fb0045_10 $fill in the blank ff488efe9fb0045_11 $fill in the blank ff488efe9fb0045_12 Question Content Area 2. Based on the results disclosed by the differential analysis, should the proposal to operate a retail store be accepted? 3. If the proposal is accepted, what is the total estimated income from operations of the warehouse for the 16 years?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 21P

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Question Content Area

1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential AnalysisOperate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2)July 1

	Operate Warehouse (Alternative 1)	Invest in Bonds (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$fill in the blank ff488efe9fb0045_1	$fill in the blank ff488efe9fb0045_2	$fill in the blank ff488efe9fb0045_3
Costs:
Costs to operate warehouse	fill in the blank ff488efe9fb0045_4	fill in the blank ff488efe9fb0045_5	fill in the blank ff488efe9fb0045_6
Cost of equipment less residual value	fill in the blank ff488efe9fb0045_7	fill in the blank ff488efe9fb0045_8	fill in the blank ff488efe9fb0045_9
Income (Loss)	$fill in the blank ff488efe9fb0045_10	$fill in the blank ff488efe9fb0045_11	$fill in the blank ff488efe9fb0045_12

Question Content Area

2. Based on the results disclosed by the differential analysis, should the proposal to operate a retail store be accepted?

3. If the proposal is accepted, what is the total estimated income from operations of the warehouse for the 16 years?
$fill in the blank d6fa6701dfe5074_2

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Cost of store equipment	$148,800
Life of store equipment	16 years
Estimated residual value of store equipment	$19,000
Yearly costs to operate the warehouse, excluding depreciation of equipment
	depreciation of store equipment	$56,500
Yearly expected revenues—years 1-8	74,200
Yearly expected revenues—years 9-16	69,800