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 $150,400 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 $150,400 Life of store equipment 16 years Estimated residual value of store equipment $19,000 Yearly costs to operate the store, excluding depreciation of store equipment $56,900 Yearly expected revenues—years 1-8 $74,100 Yearly expected revenues—years 9-16 $70,800 Required: Question Content Area 1. Prepare a differential analysis as of October 1 to determine whether to Operate Retail Store (Alternative 1) or Invest in Bonds (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential AnalysisOperate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2)October 1 Operate Retail Store (Alternative 1) Invest in Bonds (Alternative 2) Differential Effects (Alternative 2) Revenues $fill in the blank 659193ff4007038_1 $fill in the blank 659193ff4007038_2 $fill in the blank 659193ff4007038_3 Costs: Costs to operate store fill in the blank 659193ff4007038_4 fill in the blank 659193ff4007038_5 fill in the blank 659193ff4007038_6 Cost of equipment less residual value fill in the blank 659193ff4007038_7 fill in the blank 659193ff4007038_8 fill in the blank 659193ff4007038_9 Profit (loss) $fill in the blank 659193ff4007038_10 $fill in the blank 659193ff4007038_11 $fill in the blank 659193ff4007038_12 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 income from operations of the store for the 16 years? $fill in the blank f05ef107d05302d_2
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 $150,400 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 $150,400 Life of store equipment 16 years Estimated residual value of store equipment $19,000 Yearly costs to operate the store, excluding depreciation of store equipment $56,900 Yearly expected revenues—years 1-8 $74,100 Yearly expected revenues—years 9-16 $70,800 Required: Question Content Area 1. Prepare a differential analysis as of October 1 to determine whether to Operate Retail Store (Alternative 1) or Invest in Bonds (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential AnalysisOperate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2)October 1 Operate Retail Store (Alternative 1) Invest in Bonds (Alternative 2) Differential Effects (Alternative 2) Revenues $fill in the blank 659193ff4007038_1 $fill in the blank 659193ff4007038_2 $fill in the blank 659193ff4007038_3 Costs: Costs to operate store fill in the blank 659193ff4007038_4 fill in the blank 659193ff4007038_5 fill in the blank 659193ff4007038_6 Cost of equipment less residual value fill in the blank 659193ff4007038_7 fill in the blank 659193ff4007038_8 fill in the blank 659193ff4007038_9 Profit (loss) $fill in the blank 659193ff4007038_10 $fill in the blank 659193ff4007038_11 $fill in the blank 659193ff4007038_12 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 income from operations of the store for the 16 years? $fill in the blank f05ef107d05302d_2
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 4CE: Manzer Enterprises is considering two independent investments: A new automated materials handling...
Related questions
Question
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 $150,400 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 | $150,400 | |
| Life of store equipment | 16 years | |
| Estimated residual value of store equipment | $19,000 | |
| Yearly costs to operate the store, excluding | ||
| $56,900 | ||
| Yearly expected revenues—years 1-8 | $74,100 | |
| Yearly expected revenues—years 9-16 | $70,800 |
Required:
Question Content Area
1. Prepare a differential analysis as of October 1 to determine whether to Operate Retail Store (Alternative 1) or Invest in Bonds (Alternative 2). If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.
| Operate Retail Store (Alternative 1) |
Invest in Bonds (Alternative 2) |
Differential Effects (Alternative 2) |
|
| Revenues | $fill in the blank 659193ff4007038_1 | $fill in the blank 659193ff4007038_2 | $fill in the blank 659193ff4007038_3 |
| Costs: | |||
| Costs to operate store | fill in the blank 659193ff4007038_4 | fill in the blank 659193ff4007038_5 | fill in the blank 659193ff4007038_6 |
| Cost of equipment less residual value | fill in the blank 659193ff4007038_7 | fill in the blank 659193ff4007038_8 | fill in the blank 659193ff4007038_9 |
| $fill in the blank 659193ff4007038_10 | $fill in the blank 659193ff4007038_11 | $fill in the blank 659193ff4007038_12 |
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 income from operations of the store for the 16 years?
$fill in the blank f05ef107d05302d_2
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Financial Accounting: The Impact on Decision Make…
Accounting
ISBN:
9781305654174
Author:
Gary A. Porter, Curtis L. Norton
Publisher:
Cengage Learning