Arlandria, Inc. has bought a new server and needs to decide what to do with the

Question

Arlandria, Inc. has bought a new server and needs to decide what to do with the old one. The cost of the old server was originally $60,000 and has been depreciated by $45,000. The company has received two offers that it must consider. One offer was made to sell the equipment outright for $18,500 less a 4% sales commission (based off the selling price). The other offer was to lease the equipment to a customer for $7,000/year for the next five years, but the company will be required to provide maintenance and insurance totaling $3,000 per year. Based upon the differential income, what offer should Arlandria, Inc. accept?   Please show your work for full credit (Need to see the differential income).

Explanation / Answer

PARTICULARS AMOUNT ($) Differentail Revenue: REvenue from lease (7000*5) 35000 Revenue from sale 18500 Differential revenue from lease 16500 Differential Costs Maintenance andInsurance (3000*5) 15000 Commission Expense on Sale (18500*4%) 740 Differential cost 14260 Net differential income from the lease alternative $ 2240

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