Question

On August 1, Rantoul 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 $152,000 of 7% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled:

Cost of store equipment	$152,000
Life of store equipment	16 years
Estimated residual value of store equipment	$12,800
Yearly costs to operate the store, excluding depreciation of store equipment	$60,120
Yearly expected revenues—years 1–8	$86,000
Yearly expected revenues—years 9–16	$72,700

	Required:
1.	Prepare a differential analysis as of August 1 presenting the proposed operation of the store for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required.
2.	Based on the results disclosed by the differential analysis, should the proposal be accepted?
3.	3. If the proposal is accepted, what would be the total estimated income from operations of the store for the 16 years? Lexigraphic Printing Company is considering replacing a machine that has been used in its factory for four years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows: Old Machine Cost of machine, 10-year life $88,820 Annual depreciation (straight-line) 9,050 Annual manufacturing costs, excluding depreciation 23,470 Annual non-manufacturing operating expenses 6,020 Annual revenue 74,030 Current estimated selling price of machine 29,610 New Machine Purchase price of machine, six-year life $119,515 Annual depreciation (straight-line) 20,040 Estimated annual manufacturing costs, excluding depreciation 6,805 Annual non-manufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine. Required: 1. Prepare a differential analysis as of April 30 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the total differential income that would result over the six-year period if the new machine is acquired. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required. 2. List other factors that should be considered before a final decision is reached. Prepare a differential analysis as of April 30 comparing operations using the present machine (Alternative 1) with operations using the new machine (Alternative 2). The analysis should indicate the total differential income that would result over the six-year period if the new machine is acquired. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required. Differential Analysis Continue with (Alternative 1) or Replace (Alternative 2) Old Machine April 30 1 Continue with Old Machine Replace Old Machine Differential Effect on Income 2 (Alternative 1) (Alternative 2) (Alternative 2)

Answer 1

Particulars	Continue with Old Machine	Replace Old Machine	Diffferential Effect on Income
Revenues
Proceed from Sale of Old Machine	0	29,610	29,610
Cost
Purchase Price	0	1,19,515	1,19,515
Annual Manufacturing Cost	23,470	6,805	(16,665)
Income (Loss)	(23,470)	(96,710)	(73,240)