Differential Analysis Involving Opportunity Costs Required: 1. Prepare a differe
ID: 2370527 • Letter: D
Question
Differential Analysis Involving Opportunity Costs
Required:
1. Prepare a differential analysis as of August 1, 2012, presenting the proposed operation of the store for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter zero "0".
2. Based on the results disclosed by the differential analysis, should the proposal to operate the retail store be accepted?
SelectYesNoCorrect 1 of Item 2
3. If the proposal is accepted, what would be the total estimated income from operations of the store for the 16 years?
$
1. Prepare a differential analysis as of August 1, 2012, presenting the proposed operation of the store for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2). If an amount is zero, enter zero "0".
Differential Analysis Operate Retail Store (Alt. 1) or Invest in Bonds (Alt. 2) August 1, 2012 Operate Retail Store (Alternative 1) Invest in Bonds (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $ $ $ Costs Costs to operate store Cost of equipment less residual value Income (Loss) $ $ $
Explanation / Answer
Proposal to Operate Retail Store
aUG 1, 2012
Differential revenue from alternatives:
Revenue from operating store (a) $ 1,160,000
Revenue from investment bonds(b) $144,000
----------------------------------------
Differential revenue from operating store $1,016,000
Differential cost of alternatives:
Costs to operate store $ 896,000
Cost of store equipment less residual value (150,000-18,000) $132,000
Differential cost of operating store $1,028,000
Differential Loss from operating store ($12,000)
(a) (8yrs.
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