Question

Differential Analysis for a Lease-or-Sell Decision Inman Construction Company is considering selling excess machinery with a book value of $280,700 (original cost of $401,300 less accumulated depreciation of $120,600) for $275,900, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $286,100 for five years, after which it is expected to have no residual value. During the period of the lease, Inman Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,300. a. Prepare a differential analysis, dated May 25 to determine whether Inman should lease (Alternative 1) or sell (Alternative 2) the machinery. For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2) May 25 Lease Machinery Sell Machinery , Differential Effect on Income (Alternative 1) (Alternative 2) (Alternative 2) Revenues $ 286,100 $ 275,900 $ 10,200 Costs 25,300 Income (Loss) $ b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain. Sell the machinery The net gain from selling is $

Answer 1

	Lease Machinery	Sell Machinery	Differential Effect on Income
	(Alternative 1)	(Alternative 2)	(Alternative 2)
Revenues	286100	275900	-10200
Costs	-25300	-13795	11505
Income(loss)	260800	262105	1305
Sell the machinery
The net gain from selling is $1305