Max, Inc., can sell a large piece of machinery for $90,000. The machinery originally cost $240,000 and
Question:
Max, Inc., can sell a large piece of machinery for $90,000. The machinery originally cost $240,000 and has accumulated depreciation of $130,000. Max will have to pay a 5% sales commission on the sale. Rather than sell, Max is considering leasing the machine. It can be leased for four years for $24,000 per year. Max has estimated future operating expenses to be $3,000 per year, and Max will be responsible for those expenses. Which of the following options most accurately describes the analysis and decision for Max?
a) Lease—because differential revenues are $6,000 if Max leases rather than sells
b) Lease—because Max will lose $20,000 if it sells the equipment for less than its $110,000 book value
c) Sell—because differential income of selling rather than leasing is $6,000
d) Sell—because differential income is $1,500 if Max sells rather than leases
Expert Answer:
Required solution Explanation Particulars Lease Sell Revenue from sales 9000000 Les... View the full answer
