1. Assume a company has equipment with a book value of $50,000. The Company can sell the equipment through a broker for $90,000 less a 4% commission fee. Alternatively, the Company could lease the equipment to another party for 3 years at a price of $130,000. At the end of the three years, the equipment is expected to have no residual value (book value of $0). If the equipment is leased, the Company will incur total estimated expenses of $12,000 for the three years for maintenance, insurance and taxes.
What is the differential net income?
2. A company manufactures a product (A) for a total production cost of $13,000, which can be sold for $50,000. The company has the option to process this product further to create product B for an additional cost of $10,000. Product B can be sold for $58,000. What is the differential cost between these two options?