FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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On October 1, Midway Distribution Company 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 $150,400 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 | $150,400 | |
| Life of store equipment | 16 years | |
| Estimated residual value of store equipment | $19,000 | |
| Yearly costs to operate the store, excluding | ||
| $56,900 | ||
| Yearly expected revenues—years 1-8 | $74,100 | |
| Yearly expected revenues—years 9-16 | $70,800 |
Required:
Question Content Area
1. Prepare a differential analysis as of October 1 to determine whether to Operate Retail Store (Alternative 1) or Invest in Bonds (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.
| Operate Retail Store (Alternative 1) |
Invest in Bonds (Alternative 2) |
Differential Effects (Alternative 2) |
|
| Revenues | $fill in the blank 659193ff4007038_1 | $fill in the blank 659193ff4007038_2 | $fill in the blank 659193ff4007038_3 |
| Costs: | |||
| Costs to operate store | fill in the blank 659193ff4007038_4 | fill in the blank 659193ff4007038_5 | fill in the blank 659193ff4007038_6 |
| Cost of equipment less residual value | fill in the blank 659193ff4007038_7 | fill in the blank 659193ff4007038_8 | fill in the blank 659193ff4007038_9 |
| $fill in the blank 659193ff4007038_10 | $fill in the blank 659193ff4007038_11 | $fill in the blank 659193ff4007038_12 |
Question Content Area
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?
$fill in the blank f05ef107d05302d_2
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