Differential Analysis for a Lease or Sell Decision Sure-Bilt Construction Compan

Question

Differential Analysis for a Lease or Sell Decision

Sure-Bilt Construction Company is considering selling excess machinery with a book value of $280,400 (original cost of $400,100 less accumulated depreciation of $119,700) for $276,900, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $287,200 for five years, after which it is expected to have no residual value. During the period of the lease, Sure-Bilt Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $25,300.

Prepare a differential analysis, dated January 3, 2014, to determine whether Sure-Bilt should lease (Alternative 1) or sell (Alternative 2) the machinery.

Analysis for a Lease or Sell Decision Compa ev is considering seling excess machinery "ith a book vak" of $2 so,400 (origi al cost of commission Alternativels, the machinery can be leased for a total of $287,200 400.100 le edeprediation of $119,700) for to have no resiualv During the period of the lease, Sure Bit Cntrution Company's costs of repair%, insurance, and property tax·xpenses are expect Companys a. Prepar, a differential anarh. dated Ianuary 3, 2014, to determine whether +1. shold tease CARener u orr 2) ihe Effect on m600 acer

Explanation / Answer

Lease (Alternative 1) Sell (Alternative 2) Differential Effect on Income Revenues 287200 276900 10300 Costs -25300 -13845 -11455 Income(loss) 261900 263055 -1155 Sure-Bilt should sell (Alternative 2) the machinery.

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