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 $715,000. 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 $188,800 each year. Porter would have to continue paying $47,000 of property taxes each year and $9,000 of yearly insurance on the property, according to the proposed lease agreement. Determine the differential income or loss from the lease alternative. Enter a loss as a negative number. $fill in the blank 1

Answer 1

Answer:

Differential income = $8,100

Explanation:

The differential income is the difference in income between the two alternative uses of the unused space. This would be done as follows:

Option 1

Income from the pop corn option:

                                                                    $

Sales value                                           715,000

Less commission        (6%×715,000)   (42,900)

Net sales value                                      672,100

Option 2 :

Lease income from Salty Snacks

                                                                     $

Lease income                                          188,800

Taxes                                                         47,000

Insurance                                                   9,000

Annual Net lease income                         132,800

Total lease income for 5 years    132800× 5= $664,000

Differential income 672,100-664,000 = 8,100

Differential income = $8,100