Assume that Penguin Co. is considering disposing of equipment that cost $50,000

Question

Assume that Penguin Co. is considering disposing of equipment that cost $50,000 and has $40,000 of accumulated depreciation to date. Penguin Co. can sell the equipment through a broker for $25,000 less 5% commission. Alternatively, Teal Co. has offered to lease the equipment for five years for a total of $48,750. Penguin will incur repair, insurance, and property tax expenses estimated at $10,000. At lease-end, the equipment is expected to have no residual value. The net differential income from the lease alternative is?

Explanation / Answer

Particulars Amount Sale Value of Equipment $25,000 Less 5% Discount $1,250 Net Sale Value $23,750 Lease Value of Equipment $48,750 Less Expenses $10,000 Net Amounr from Lease $38,750 Less Net Sale Value $23,750 Differential Income From Lease $15,000

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