Differential Analysis for a Lease or Sell Decision
Burlington Construction Company is considering selling excess machinery with a book value of $279,200 (original cost of $399,900 less accumulated depreciation of $120,700) for $276,300, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $285,700 for five years, after which it is expected to have no residual value. During the period of the lease, Burlington Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,500.
a. Prepare a differential analysis dated January 15 to determine whether Burlington Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to indicate a loss.
Differential Analysis | |||
Lease (Alt. 1) or Sell (Alt. 2) Machinery | |||
January 15 | |||
Lease Machinery (Alternative 1) |
Sell Machinery (Alternative 2) |
Differential Effects (Alternative 2) |
|
Revenues | $ | $ | $ |
Costs | |||
Profit (Loss) | $ | $ | $ |
b. On the basis of the data presented, would it be advisable to lease or sell the machinery?
a. Prepare a differential analysis dated January 15 to determine whether Burlington Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. If required, use a minus sign to indicate a loss.
Differential Analysis | |||
Lease (Alt. 1) or Sell (Alt. 2) Machinery | |||
January 15 | |||
Lease Machinery (Alternative 1) |
Sell Machinery (Alternative 2) |
Differential Effects (Alternative 2) |
|
Revenues | $285700 | $276300 | -9400 |
Costs | -25500 | -13815 | 11685 |
Profit (Loss) | $260200 | $262485 | $2285 |
b. On the basis of the data presented, would it be advisable to lease or sell the machinery?
Sell the machine
Differential Analysis for a Lease or Sell Decision Burlington Construction Company is considering selling excess machinery...
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Differential Analysis for a Lease or Sell Decision Granite Construction Company is considering selling excess machinery with a book value of $281,500 (original cost of $401.700 less accumulated depreciation of S 120,200) for $277,000, five years, after which it is expected to have no residual value. During the period of the lease, Granite Construction insurance, and property tax expenses are expected to be $25,400 less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $284,700...
eBook Show Me How Calculator Differential Analysis for a Lease or Sell Decision Burlington Construction Company is considering selling excess machinery with a book value of $115,000 (original cost of $275,000 less accumulated depreciation of $160,000) for $90,000, less a 6% brokerage commission. Alternatively, the machinery can be leased for a total of $100,000, for four years, after which it is expected to have no residual value. During the period of the lease, Burlington Construction Company's costs of repairs, insurance,...
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