Differential Analysis for a Lease$-$or$-$sell Decision

Stowe Construction Company is considering selling excess machinery with a book value of $$283,400($original cost of $$401,800$ less accumulated depreciation of $$118,400)$ for $$275,100,$ less a $5\%$ brokerage commission. Alternatively, the machinery can be leased for a total of $$285,600$ for $5$ years, after which it is expected to have no residual value. During the period of the lease, Stowe Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $$25,200.$

Question Content Area

a$.$Prepare a differential analysis dated March $21$ to determine whether Stowe Construction Company should lease $($Alternative $1)$ or sell $($Alternative $2)$ the machinery. If required, use a minus sign to indicate a loss.

Differential Analysis

Lease $($Alt$.1)$ or Sell $($Alt$.2)$ Machinery

March $21$Line Item DescriptionLease

Machinery

$($Alternative $1)$Sell

Machinery

$($Alternative $2)$Differential

Effects

$($Alternative $2)$Revenues$Revenues$Revenues$RevenuesCostsCostsCostsCostsProfit $($loss$)$$Profit $($loss$)$$Profit $($loss$)$$Profit $($loss$)$

Question Content Area

b$.$On the basis of the data presented, would it be advisable to lease or sell the machinery?

Lease the machinerySell the machinery