< On July 1, Coastal Distribution Company is considering leasing a building and buying the necessary...

Transcribed Image Text:

< On July 1, Coastal Distribution Company is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $151,600 of 5% U.S. Treasury bonds that mature in purchased at face value. The following data have been assembled: Cost of store equipment Life of store equipment $151,600 16 years $17,100 Estimated residual value of equipment Yearly costs to operate the warehouse, excluding depreciation of equipment $56,800 Yearly expected revenues-years 1-8 74,700 69,300 Yearly expected revenues-years 9-16 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus s Differential Analysis Operate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2) Line Item Description Revenues Costs: Costs to operate warehouse Cost of equipment less residual value Profit (Loss) July 1 Operate Warehouse Invest in Bonds (Alternative 1) (Alternative 2) Differential Effects (Alternative 2) Feedback * Check My Work 1. Subtract the warehouse costs (14 years) and the cost of the equipment less the residual value from the revenues from operating the warehouse. Determine the bond investment interest income for 14 years (principal x rate x time). Determine the d the revenues, costs, and profit (loss) by subtracting alternative 1 from alternative 2. Which alternative has the most desirable effect on income? 2. Based on the results disclosed by the differential analysis, should the proposal be accepted? No 3. If the proposal is accepted, what is the total estimated operating income of the warehouse for 16 years? < On July 1, Coastal Distribution Company is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $151,600 of 5% U.S. Treasury bonds that mature in purchased at face value. The following data have been assembled: Cost of store equipment Life of store equipment $151,600 16 years $17,100 Estimated residual value of equipment Yearly costs to operate the warehouse, excluding depreciation of equipment $56,800 Yearly expected revenues-years 1-8 74,700 69,300 Yearly expected revenues-years 9-16 Required: 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "0". If required, use a minus s Differential Analysis Operate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2) Line Item Description Revenues Costs: Costs to operate warehouse Cost of equipment less residual value Profit (Loss) July 1 Operate Warehouse Invest in Bonds (Alternative 1) (Alternative 2) Differential Effects (Alternative 2) Feedback * Check My Work 1. Subtract the warehouse costs (14 years) and the cost of the equipment less the residual value from the revenues from operating the warehouse. Determine the bond investment interest income for 14 years (principal x rate x time). Determine the d the revenues, costs, and profit (loss) by subtracting alternative 1 from alternative 2. Which alternative has the most desirable effect on income? 2. Based on the results disclosed by the differential analysis, should the proposal be accepted? No 3. If the proposal is accepted, what is the total estimated operating income of the warehouse for 16 years?