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Fudgin [204]
3 years ago
13

Differential Analysis for a Lease or Sell Decision Granite Construction Company is considering selling excess machinery with a b

ook value of $282,400 (original cost of $400,700 less accumulated depreciation of $118,300) for $275,700, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $284,900 for five years, after which it is expected to have no residual value. During the period of the lease, Granite Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $24,600.
Required:
Prepare a differential analysis, dated November 7 to determine whether Granite should lease (Alternative 1) or sell (Alternative 2) the machinery.
Business
1 answer:
jeka57 [31]3 years ago
8 0

Answer and Explanation:

The preparation of the differential analysis is presented below:

<u>Particulars   Lease Machinery Sell Machinery Differential Effect on Income </u>

Revenues     $284,900             $275,700              $9,200

Costs            $24,600                $13,785                 $10,815

Income (Loss) $260,300          $261,915              -$1,615

It is better to sell the machinery as it has a loss of $1,615

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