# On July 1, Matrix Stores Inc. 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 \$148,800 of 5% 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 \$148,800 Life of store equipment 16 years Estimated residual value of store equipment \$19,000 Yearly costs to operate the warehouse, excluding depreciation of equipment     depreciation of store equipment \$56,500 Yearly expected revenues—years 1-8 74,200 Yearly expected revenues—years 9-16 69,800 Required: Question Content Area 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". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential AnalysisOperate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2)July 1   Operate Warehouse (Alternative 1) Invest in Bonds (Alternative 2) Differential Effect on Income (Alternative 2) Revenues \$fill in the blank ff488efe9fb0045_1 \$fill in the blank ff488efe9fb0045_2 \$fill in the blank ff488efe9fb0045_3 Costs:       Costs to operate warehouse fill in the blank ff488efe9fb0045_4 fill in the blank ff488efe9fb0045_5 fill in the blank ff488efe9fb0045_6 Cost of equipment less residual value fill in the blank ff488efe9fb0045_7 fill in the blank ff488efe9fb0045_8 fill in the blank ff488efe9fb0045_9 Income (Loss) \$fill in the blank ff488efe9fb0045_10 \$fill in the blank ff488efe9fb0045_11 \$fill in the blank ff488efe9fb0045_12   Question Content Area 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 is the total estimated income from operations of the warehouse for the 16 years?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Question
1. On July 1, Matrix Stores Inc. 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 \$148,800 of 5% 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 \$148,800 Life of store equipment 16 years Estimated residual value of store equipment \$19,000 Yearly costs to operate the warehouse, excluding depreciation of equipment depreciation of store equipment \$56,500 Yearly expected revenues—years 1-8 74,200 Yearly expected revenues—years 9-16 69,800

Required:

### Question Content Area

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". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

Differential AnalysisOperate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2)July 1
 Operate Warehouse (Alternative 1) Invest in Bonds (Alternative 2) Differential Effect on Income (Alternative 2) Revenues \$fill in the blank ff488efe9fb0045_1 \$fill in the blank ff488efe9fb0045_2 \$fill in the blank ff488efe9fb0045_3 Costs: Costs to operate warehouse fill in the blank ff488efe9fb0045_4 fill in the blank ff488efe9fb0045_5 fill in the blank ff488efe9fb0045_6 Cost of equipment less residual value fill in the blank ff488efe9fb0045_7 fill in the blank ff488efe9fb0045_8 fill in the blank ff488efe9fb0045_9 Income (Loss) \$fill in the blank ff488efe9fb0045_10 \$fill in the blank ff488efe9fb0045_11 \$fill in the blank ff488efe9fb0045_12

### Question Content Area

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 is the total estimated income from operations of the warehouse for the 16 years?
\$fill in the blank d6fa6701dfe5074_2

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