Question

Differential Analysis for a Lease-or-Sell Decision Sure-Bilt Construction Company is considering selling excess machinery with a book value of $279,100 (original cost of $399,200 less accumulated depreciation of $120,100) for $275,300, less a 5% brokerage commission. Alternatively, the machinery can be leased to another company for a total of $285,600 for five years, after which it is expected to have no residual value. During the period of the lease, Sure-Bilt Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,100. a. Prepare a differential analysis, dated May 25 to determine whether Sure-Bilt should lease (Alternative 1) or sell (Alternative 2) the machinery. For those boxes in which you must enter subtracted or negative numbers use a minus sign. Differential Analysis Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2) May 25 Lease Machinery Sell Machinery Differential Effect on Income (Alternative 1) (Alternative 2) (Alternative 2) 285,600 275,300 $ 10,300 -25,100 -13,765 Revenues Costs Income (Loss) $ 260,500 261,535 b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain. Sell the machinery The net gain from selling is s

Answer 1

a.

Differential Analysis
Lease Machinery (Alt.1) or Sell Machinery ( Alt.2)
May 25
	Lease Machinery (Alternative 10	Sell Machinery (Alternative 2)	Differential Effect on Income ( Alternative 2)
Revenues	285,600	275,300	-10,300
Costs	-25,100	-13765	11,335
Income (Loss)	260,500	261,535	1,035

b. On the basis of the data presented, would it be advisable to sell the machinery

The net gain from selling is $1,035.

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