arning Objective 1

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Differential Analysis Involving Opportunity Costs

On October 1, Matrix 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 $150,400 of 6% 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		$17,000
Yearly costs to operate the store, excluding
	depreciation of store equipment	$56,100
Yearly expected revenuesyears 1-8		$75,200
Yearly expected revenuesyears 9-16		$69,100

Required:

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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.

Differential Analysis Operate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2) October 1

	Operate Retail Store (Alternative 1)	Invest in Bonds (Alternative 2)	Differential Effects (Alternative 2)
Revenues	$fill in the blank 2c87f502301e008_1	$fill in the blank 2c87f502301e008_2	$fill in the blank 2c87f502301e008_3
Costs:
Costs to operate store	fill in the blank 2c87f502301e008_4	fill in the blank 2c87f502301e008_5	fill in the blank 2c87f502301e008_6
Cost of equipment less residual value	fill in the blank 2c87f502301e008_7	fill in the blank 2c87f502301e008_8	fill in the blank 2c87f502301e008_9
Profit (loss)	$fill in the blank 2c87f502301e008_10	$fill in the blank 2c87f502301e008_11	$fill in the blank 2c87f502301e008_12

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2. Based on the results disclosed by the differential analysis, should the proposal be accepted?

YesNo

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 328d43f0a045fe5_2