Question

The Porter Beverage Factory owns a building for its operations. Porter uses only half of the building and is considering two options for the unused space. The Popcorn Store would like to purchase the half of the building that is not being used for $552,000. A 6% commission would have to be paid at the time of purchase. Salty Snacks would like to lease half of the building for the next five years at $145,700 each year. Porter would have to continue paying $36,100 of property taxes each year and $6,900 of yearly insurance on the property, according to the proposed lease agreement.
Required:
a) Determine the differential income or loss from the two alternatives.

Answer 1

Answer:

Lease differential income (loss) 5,380

Explanation:

The computation of differential income or loss from the two alternatives is shown below:-

                        Sell               Lease         Differential income (loss)

Revenue       $552,000     $728,500       $176,500

                                          ($145,700 × 5)

Expense       $33,120              $215,000     -$181,880

               ($552,000 × 6%) ($36,100 + $6,900) × 5

Income       $518,880              $513,500      $5,380

(loss)

Lease differential income (loss) 5,380