Lease or Sell Decision Inman Industries is considering selling excess machinery with a book value of...

Lease or Sell Decision

Inman Industries is considering selling excess machinery with a book value of $278,000 (original cost of $398,500 less accumulated depreciation of $120,500) for $274,200 less a 6% brokerage commission. Alternatively, the machinery can be leased for a total of $283,500 for five years, after which it is expected to have no residual value. During the period of the lease, Inman Industries' costs of repairs, insurance, and property tax expenses are expected to be $24,900.

a. Prepare a differential analysis report for the lease or sell decision.

INMAN INDUSTRIES
Proposal to Lease or Sell Machinery
Differential Analysis Report
Differential revenue from alternatives:
Revenue from lease	$
Proceeds from sale
Differential revenue from lease		$
Differential cost of alternatives:
Repairs, insurance, and property tax expenses from lease	$
Commission on sale
Differential cost of lease
Net differential gain from lease alternative		$

b. Based on the data presented, which is the most appropriate plan of action?

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Part a

INMAN INDUSTRIES
Proposal to Lease or Sell Machinery:
Differential Analysis Report

Differential revenue from alternatives:
Revenue from lease		$ 283,500
Proceeds from sale		$ 274,200
Differential revenue from lease	a	$ 9,300
Differential cost of alternatives:
Repairs, insurance, and property tax expenses from lease		$ 24,900
Commission on sale	$274,2006%*	$ 16,452
Differential cost of lease		$ 8,448
Net differential gain from lease alternative		$ 852

Part b
Should be leased as there is incremental gain

ekkarill92 answered 2 years ago

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