Question

Differential Analysis for a Lease-or-Sell Decision Sure-Bilt Construction Company is considering selling excess machinery with a book value of $279,800 (original cost of $398,700 less accumulated depreciation of $118,900) for $276,500, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $283,800 for five years, after which it is expected to have no residual value. During the period of the lease, Sure-Bilt Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,600. a. Prepare a differential analysis, dated May 25 to determine whether Sure-Bilt 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 (Alternative 1) Sell Machinery (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $ Costs Income (Loss) $ b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain. The net from selling is $

Answer 1

a) Differential analysis

	Lease machinery	Sell machinery	Differential effect on income
Revenue	283800	276500	-7300
Costs	-25600	-13825	11775
Income (loss)	258200	262675	4475

b) Sell machinery

the net income from selling is $4475