On October 1, White Way Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in $180,000 of 6% U.S. Treasury bonds that mature in 16 years. The bonds could be purchased at face value. The following data have been assembled:
cost of store equipment=$180,000 life of store equipmenet=16 years estimated residual value of store equipement =$15,000 yearly costs to operate the store, excluding depreciation of store equipment=$58,000 Yearly expected revenues-years 1-8=$85,000 yearly expected revenues-years 9-16=$73,000
1. Prepare a differential analysis as of October 1, 2014, presenting with proposed operation of the store for the 16 years (Alternative 1) as compared with investing in U.S. Treasury bonds (Alternative 2)
2. Based on the results disclosed by the differential analysis, should the propsoal be accepted?
3. If the proposal is accepted, what would be the total estimated income from operations of the store for the 16 years?