Assume that Win Co. is considering disposing of equipment that cost $76,890.00 a

Question

Assume that Win Co. is considering disposing of equipment that cost $76,890.00 and has $53,823.00 of accumulated depreciation to date. Win Co. can sell the equipment through a broker for $34,376.00 less 5% commission. Alternatively, But Co. has offered to lease the equipment for five years for a total of $48,350.00. Win will incur repair, insurance, and property tax expenses estimated at $11,242.00. At lease-end, the equipment is expected to have no residual value. Determine the net differential income from the lease alternative.

Explanation / Answer

Differential revenue from alternative=revenue from lease - revenue from sale

=48350-34376

=13974

Differential cost of alternative=repair,insurance and property expense - Commission expense

=11242-1719

=9523

Net differential income from lease alternative=13974-9523=4451

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