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 $176,000 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	$176,000
Life of store equipment	16 years
Estimated residual value of store equipment	$16,800
Yearly costs to operate the store, excluding depreciation of store equipment	$57,740
Yearly expected revenues—years 1–8	$87,700
Yearly expected revenues—years 9–16	$72,000

	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.	If the proposal is accepted, what would be the total estimated income from operations of the store for the 16 years?

Labels and Amount Descriptions

Labels
Cash flows from investing activities
Costs
Amount Descriptions
Costs to operate store
Cost of equipment less residual value
Gain on sale of investments
Income (loss)
Loss on sale of investments
Revenues

Differential Analysis

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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.

Score: 35/71

Differential Analysis

Operate Retail Store (Alternative 1) or Invested in U.S. Treasury Bonds (Alternative 2)

August 1

1		Operate Retail Store	Invested in U.S. Treasury Bonds	Differential Effect on Income
2		(Alternative 1)	(Alternative 2)	(Alternative 2)
3	?	?	?
4	?
5	?
6	?
7	?		?

Points:

8.38 / 17

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Final Questions

Shaded cells have feedback.

2. Based on the results disclosed by the differential analysis, should the proposal be accepted?

No

Yes

The company is indifferent since the result is the same regardless of which alternative is chosen.

Points:

1 / 1

3. If the proposal is accepted, what would be the total estimated income from operations of the store for the 16 years?

Points:

0 / 1

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Please answer questions by filling in the blanks.

Answer 1