Differential Analysis for a Lease or Sell Decision

Granite Construction Company is considering selling excess machinery with a book value of $175,000 (original cost of $315,000 less accumulated depreciation of $140,000) for $180,000, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $200,000 for four years, after which it is expected to have no residual value. During the period of the lease, Granite Construction Companys costs of repairs, insurance, and property tax expenses are expected to be $34,400.

Question Content Area

a. Prepare a differential analysis, dated November 7 to determine whether Granite should lease (Alternative 1) or sell (Alternative 2) the machinery.

Differential Analysis Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2) November 7

	Lease Machinery (Alternative 1)	Sell Machinery (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$fill in the blank 64531ef40f84040_1	$fill in the blank 64531ef40f84040_2	$fill in the blank 64531ef40f84040_3
Costs	fill in the blank 64531ef40f84040_4	fill in the blank 64531ef40f84040_5	fill in the blank 64531ef40f84040_6
Income (Loss)	$fill in the blank 64531ef40f84040_7	$fill in the blank 64531ef40f84040_8	$fill in the blank 64531ef40f84040_9

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