On October 1, White Way 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 $176,000 of 7% 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 $176,000 Life of store equipment 16 years Estimated residual value of store equipment $16,800 Yearly costs to operate the store, excluding depreciation of store equipment $57,740 Yearly expected revenues—years 1–8 $87,700 Yearly expected revenues—years 9–16 $72,000 Required: A. 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). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required. B. Based on the results disclosed by the differential analysis, should the proposal be accepted? C. If the proposal is accepted, what would be the total estimated income from operations of the store for the 16 years? Labels: Cash flows from investing activitiesCostsAmount DescriptionsCosts to operate storeCost of equipment less residual valueGain on sale of investmentsIncome (Loss)Loss on sale of investmentsRevenues A. 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). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required. Differential Analysis Operate Retail Store (Alternative 1) or Invest in Bonds (Alternative 2) October 1 1 Operate Retail Store Invest in Bonds Differential Effect on Income 2 (Alternative 1) (Alternative 2) (Alternative 2) 3 4 5 6 7 B. Based on the results disclosed by the differential analysis, should the proposal be accepted?

On October 1, White Way 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 $176,000 of 7% 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 $176,000 Life of store equipment 16 years Estimated residual value of store equipment $16,800 Yearly costs to operate the store, excluding depreciation of store equipment $57,740 Yearly expected revenues—years 1–8 $87,700 Yearly expected revenues—years 9–16 $72,000 Required: A. 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). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required. B. Based on the results disclosed by the differential analysis, should the proposal be accepted? C. If the proposal is accepted, what would be the total estimated income from operations of the store for the 16 years? Labels: Cash flows from investing activitiesCostsAmount DescriptionsCosts to operate storeCost of equipment less residual valueGain on sale of investmentsIncome (Loss)Loss on sale of investmentsRevenues A. 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). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required. Differential Analysis Operate Retail Store (Alternative 1) or Invest in Bonds (Alternative 2) October 1 1 Operate Retail Store Invest in Bonds Differential Effect on Income 2 (Alternative 1) (Alternative 2) (Alternative 2) 3 4 5 6 7 B. Based on the results disclosed by the differential analysis, should the proposal be accepted?

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...

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Cost of store equipment	$176,000
Life of store equipment	16 years
Estimated residual value of store equipment	$16,800
Yearly costs to operate the store, excluding depreciation of store equipment	$57,740
Yearly expected revenues—years 1–8	$87,700
Yearly expected revenues—years 9–16	$72,000

	Required:
A.	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). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.
B.	Based on the results disclosed by the differential analysis, should the proposal be accepted?
C.	If the proposal is accepted, what would be the total estimated income from operations of the store for the 16 years?

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Cash flows from investing activitiesCostsAmount DescriptionsCosts to operate storeCost of equipment less residual valueGain on sale of investmentsIncome (Loss)Loss on sale of investmentsRevenues

A. 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). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.

Differential Analysis

Operate Retail Store (Alternative 1) or Invest in Bonds (Alternative 2)

October 1

1	Operate Retail Store	Invest in Bonds	Differential Effect on Income
2	(Alternative 1)	(Alternative 2)	(Alternative 2)
3
4
5
6
7

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

Yes

The company is indifferent since the result is the same regardless of which alternative is chosen.

C. If the proposal is accepted, what would be the total estimated income from operations of the store for the 16 years?

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Differential Analysis:-It is a statement that management creates by only considering revenue, cost, and profit instead of making a whole income statement for evaluating the decision regarding accounting technique.

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