Accounting 26th Edition by Carl Warren ,Jim Reeve ,Jonathan Duchac

Exercise 56

Differential analysis involving opportunity costs
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:

Instructions
1. Prepare a differential analysis as of October 1 presenting the 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 proposal be accepted
3. If the proposal is accepted, what would be the total estimated income from operations of the store for the 16 years