On July 1, Daybreak Stores Inc. 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 $280,000 of 5% U.S. Treasury bonds that mature in 20 years. The bonds could be purchased at face value. The following data have been assembled:

Cost of store equipment ........ $280,000

Life of store equipment ......... 20 years

Estimated residual value of store equipment . $20,000

Yearly costs to operate the store, excluding

depreciation of store equipment ....... $70,000

Yearly expected revenues—years 1–10 ... $88,000

Yearly expected revenues—years 11–20 .... $96,000

Instructions

1. Prepare a report as of July 1, 2008, presenting a differential analysis of the proposed operation of the store for the 20 years as compared with present conditions.

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 20 years?