Differential Analysis Involving Opportunity Costs On July 1, Campus Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $1,500,000 of 2% U.S. Treasury bonds that mature in 15 years. The bonds could be purchased at face value. The following data have been assembled: Line Item Description Amount Cost of store equipment $1,500,000 Life of store equipment 15 years Estimated residual value of store equipment $75,000 Yearly costs to operate the store, excluding depreciation of store equipment $320,000 Yearly expected revenues—years 1-6 $400,000 Yearly expected revenues—years 7-15 $600,000 Required: Question Content Area 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the store for the 15 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 sign to indicate a loss. Differential AnalysisOperate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2)July 1 Line Item Description Operate Retail Store (Alternative 1) Invest in Bonds (Alternative 2) Differential Effects (Alternative 2) Revenues $Revenues $Revenues $Revenues Costs: Costs to operate store Costs to operate store Costs to operate store Costs to operate store Cost of equipment less residual value Cost of equipment less residual value Cost of equipment less residual value Cost of equipment less residual value Profit (loss) $Profit (loss) $Profit (loss) $Profit (loss) Question Content Area 2. Based on the results disclosed by the differential analysis, should the proposal be accepted? 3. If the proposal is accepted, what would be the total estimated operating income of the store for the 15 years? fill in the blank 1 of 1$

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 1PA: Differential analysis involving opportunity costs On August 1, Rantoul Stores Inc. is considering...

See similar textbooks

Line Item Description	Amount
Cost of store equipment	$1,500,000
Life of store equipment	15 years
Estimated residual value of store equipment	$75,000
Yearly costs to operate the store, excluding depreciation of store equipment	$320,000
Yearly expected revenues—years 1-6	$400,000
Yearly expected revenues—years 7-15	$600,000

Question Content Area

1. Prepare a differential analysis as of July 1 presenting the proposed operation of the store for the 15 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 sign to indicate a loss.

Differential AnalysisOperate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2)July 1

Line Item Description	Operate Retail Store (Alternative 1)	Invest in Bonds (Alternative 2)	Differential Effects (Alternative 2)
Revenues	$Revenues	$Revenues	$Revenues
Costs:
Costs to operate store	Costs to operate store	Costs to operate store	Costs to operate store
Cost of equipment less residual value	Cost of equipment less residual value	Cost of equipment less residual value	Cost of equipment less residual value
Profit (loss)	$Profit (loss)	$Profit (loss)	$Profit (loss)

Question Content Area

2. Based on the results disclosed by the differential analysis, should the proposal be accepted?

3. If the proposal is accepted, what would be the total estimated operating income of the store for the 15 years?
fill in the blank 1 of 1$

Check My Work3 more Check My Work uses remaining.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 5 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Financial Reporting in Hyperinflationary Economies

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions