Differential Analysis for a Lease or Sell Decision

Inman Construction Company is considering selling excess machinery with a book value of $278,200 (original cost of $398,900 less accumulated depreciation of $120,700) for $277,400, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $285,800 for five years, after which it is expected to have no residual value. During the period of the lease, Inman Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,300.

a. Prepare a differential analysis, dated January 3, 2014, to determine whether Inman should lease (Alternative 1) or sell (Alternative 2) the machinery. Differential Analysis Lease Machinery (Alt.1) or Sell Machinery (Alt. 2) January 3,2014 Lease Machinery (Alternative 1) Sell Machinery (Alternative 2) Differential Effect on Income (Alternative 2) Revenues 285,800 277,400 8400 Costs 25,300 03 Income (Loss) 260500