Managerial Accounting: P12-1 On July 1, Daybreak Stores Inc. is considering selling

Managerial Accounting

P12-1
On July 1, Daybreak Stores Inc. is considering selling a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $280,000 of 5% U.S. Treasury bonds that mature in 20 years. The bonds could be purchased at face value. The following data have been assembled:
Cost of store equipment $280,000
Life of store equipment 20 years
Estimated residual value of store equipment $20,000
Yearly costs to operate the store, excluding depreciation of store equipment $70,000
Yearly expected revenues - years 1-10 $88,000
Yearly expected revenues - years 11-20 $96,000

Instructions:
1. Prepare a report as of July 1, 2008, presenting a differential analysis of the proposed operation of the store for the 20 years as compared with present conditions.
2. Based on the results disclosed by the differential analysis, should the proposal be accepted?
3. If the proposal is accepted, what would be the total estimated income from operations of the store for the 20 years?
Powered by