prob 24

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 $180,000 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:

Required:


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1.  Prepare a differential analysis as of October 1, 2014, 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, 2014
   
Operate Retail Store (Alternative 1)
 
Invest in Bonds (Alternative 2)
 
Differential Effect on Income (Alternative 2)
Revenues

 
$ [removed]
 
$ [removed]
 
$ [removed]
Costs:

           
Costs to operate store

 
[removed]
 
[removed]
 
[removed]
Cost of equipment less residual value

 
[removed]
 
[removed]
 
[removed]
Income (Loss)

 
$ [removed]
 
$ [removed]
 
$ [removed]

 


2.  Based on the results disclosed by the differential analysis, should the proposal to operate the 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?
$[removed]

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