A30 A B C D 1 Problem1: Lease or Sell 2 3 Granite Construction Company is considering selling excess machinery with a book value of $175,000 (original costs of $315,000 less accumulated deprecition of $140,000) for $180,000, less a 5% brokerage commission. 4 5 6 7 8 9 10 Alternatively, the machinery can be leased for a total of $200,000 for four years, after whcih it is expected to have no residual value. During the period of the lease, Granite Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $34,400. 11 Required: 12 A. Prepare a differential analysis, dated November 7 to dertermine whether Granite should 13 Lease (Alternative 1) or sell (Alternative 2) the machinery. 14 15 B. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain. 16 17 Solution: 18 A. 19 20 21 22 23 24 Revenues 25 Costs 26 Income (Loss) 27 28 B. Explanation: 29 30 31 32 33 34 35 36 27 Differential Analysis Lease (Alt 1) or Sell (Alt 2) Lease Machinery Sell Machinery Differential effect of Alt. 2 on income Alt. 1 Alt. 2 $ (Alt.2-Alt.1) $ Problem1 Problem2 Problem3 Problem4 Problem5 Ready Accessibility: Investigate + $