Differential Analysis Involving Opportunity Costs On October 1, Midway Distribution Company 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 $148,300 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $148,300 Life of store equipment 16 years Estimated residual value of store equipment $18,700 Yearly costs to operate the store, excluding depreciation of store equipment $56,300 Yearly expected revenues—years 1-8 $75,300 Yearly expected revenues—years 9-16 $70,600 Required: 1. Prepare a differential analysis as of October 1 presenting the proposed operation of the store for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter zero "0". Differential Analysis Operate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2) October 1 Operate Retail Store (Alternative 1) Invest in Bonds (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $fill in the blank 14f370010fd5049_1 $fill in the blank 14f370010fd5049_2 $fill in the blank 14f370010fd5049_3 Costs: Costs to operate store fill in the blank 14f370010fd5049_4 fill in the blank 14f370010fd5049_5 fill in the blank 14f370010fd5049_6 Cost of equipment less residual value fill in the blank 14f370010fd5049_7 fill in the blank 14f370010fd5049_8 fill in the blank 14f370010fd5049_9 Income (Loss) $fill in the blank 14f370010fd5049_10 $fill in the blank 14f370010fd5049_11 $fill in the blank 14f370010fd5049_12 2. Based on the results disclosed by the differential analysis, should the proposal to operate a retail store be accepted? 3. If the proposal is accepted, what would be the total estimated income from operations of the store for the 16 years? $fill in the blank 4002acfec00b06f_2

Differential Analysis Involving Opportunity Costs On October 1, Midway Distribution Company 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 $148,300 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: Cost of store equipment $148,300 Life of store equipment 16 years Estimated residual value of store equipment $18,700 Yearly costs to operate the store, excluding depreciation of store equipment $56,300 Yearly expected revenues—years 1-8 $75,300 Yearly expected revenues—years 9-16 $70,600 Required: 1. Prepare a differential analysis as of October 1 presenting the proposed operation of the store for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter zero "0". Differential Analysis Operate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2) October 1 Operate Retail Store (Alternative 1) Invest in Bonds (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $fill in the blank 14f370010fd5049_1 $fill in the blank 14f370010fd5049_2 $fill in the blank 14f370010fd5049_3 Costs: Costs to operate store fill in the blank 14f370010fd5049_4 fill in the blank 14f370010fd5049_5 fill in the blank 14f370010fd5049_6 Cost of equipment less residual value fill in the blank 14f370010fd5049_7 fill in the blank 14f370010fd5049_8 fill in the blank 14f370010fd5049_9 Income (Loss) $fill in the blank 14f370010fd5049_10 $fill in the blank 14f370010fd5049_11 $fill in the blank 14f370010fd5049_12 2. Based on the results disclosed by the differential analysis, should the proposal to operate a retail store be accepted? 3. If the proposal is accepted, what would be the total estimated income from operations of the store for the 16 years? $fill in the blank 4002acfec00b06f_2

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...

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Differential Analysis Involving Opportunity Costs

On October 1, Midway Distribution Company 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 $148,300 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled:

Cost of store equipment	$148,300
Life of store equipment	16 years
Estimated residual value of store equipment	$18,700
Yearly costs to operate the store, excluding
	depreciation of store equipment	$56,300
Yearly expected revenues—years 1-8	$75,300
Yearly expected revenues—years 9-16	$70,600

Required:

1. Prepare a differential analysis as of October 1 presenting the proposed operation of the store for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter zero "0".

Differential Analysis
Operate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2)
October 1
	Operate Retail Store (Alternative 1)	Invest in Bonds (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$fill in the blank 14f370010fd5049_1	$fill in the blank 14f370010fd5049_2	$fill in the blank 14f370010fd5049_3
Costs:
Costs to operate store	fill in the blank 14f370010fd5049_4	fill in the blank 14f370010fd5049_5	fill in the blank 14f370010fd5049_6
Cost of equipment less residual value	fill in the blank 14f370010fd5049_7	fill in the blank 14f370010fd5049_8	fill in the blank 14f370010fd5049_9
Income (Loss)	$fill in the blank 14f370010fd5049_10	$fill in the blank 14f370010fd5049_11	$fill in the blank 14f370010fd5049_12

2. Based on the results disclosed by the differential analysis, should the proposal to operate a retail store be accepted?

3. If the proposal is accepted, what would be the total estimated income from operations of the store for the 16 years?
$fill in the blank 4002acfec00b06f_2

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