90.2K

Verified Solution

Link Copied!

Differential Analysis involving Opportunity Costs On July 1, Matrix Stores Inc. is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in $149,500 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled: $149,500 16 years $18,000 Cost of store equipment ufe of store equipment Estimated residual value of store equipment Yearly costs to operate the warehouse, excluding depreciation of equipment depreciation of store equipment Yearly expected revenues-years 1-8 Yearly expected revenues-years 9-16 Required: $56,500 75,400 70,500 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "O". For those boxes in which you must enter subtracted or negative numbers use a minus sign Differential Analysis Operate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2) July 1 Operate Warehouse (Alternative 1) Invest in Bonds (Alternative 2) Differential Effect on Income (Alternative 2) Revenues Costs: Costs to operate warehouse Cost of equipment less residual value Check My Work Eminst Save and Exit Submit Assen $18,000 eBook Calculo Estimated residual value of store equipment Yearly costs to operate the warehouse, excluding depreciation of equipment depreciation of store equipment Yearly expected revenues-years 1-8 Yearly expected revenues-years 9-16 Required: $56,500 75,400 70,500 1. Prepare a differential analysis as of July 1 presenting the proposed operation of the warehouse for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter "o". For those boxes in which you must enter subtracted or negative numbers use a minus sign Differential Analysis Operate Warehouse (Alt. 1) or Invest in Bonds (Alt. 2) July 1 Operate Warehouse (Alternative 1) Invest in Bonds (Alternative 2) Differential Effect on Income (Alternative 2) Revenues Costs: Costs to operate warehouse Cost of equipment less residual value Income (Loss) 2. Based on the results disclosed by the differential analysis, should the proposal to operate a retail store be accepted? 3. If the proposal is accepted, what is the total estimated income from operations of the warehouse for the 16 years? Check My Work

Answer & Explanation Solved by verified expert

See Answer