PR 25-1A
On March 1, Midway Distribution Company is considering leasing a building and
buying the necessary equipment to operate a public warehouse
Financial
Accounting, Managerial Accounting Carl Warren, James M. Reeve, Jonathan E.
Duchac
Answer
Key PR 25-1A
Midway Distribution Company
PR 25-1A
On March 1, Midway Distribution Company is considering leasing a building and
buying the necessary equipment to operate a public warehouse. Alternatively,
the company could use the funds to invest in $750,000of 7% U.S.Treasury bonds
that mature in 14 years. The bonds could be purchased at face value. The
following data have been assembled: Cost of equipment $750,000 Life of
equipment 14 years Estimated residual value of equipment $76,000 Yearly costs
to operate the warehouse, excluding depreciation of equipment $195,000 Yearly
expected revenues—years 1–7 $330,000 Yearly expected revenues—years 8–14
$280,000
Instructions
1.
Prepare a report as of March 1, 2010, presenting a differential analysis of the
proposed operation of the warehouse for the 14 years as compared with present
conditions.
2.
Based on the results disclosed by the differential analysis, should the
proposal be accepted?
3. If the proposal is accepted, what is the total
estimated income from operations of the warehouse for the 14 years?
File name: PR-25-1A-Midway-Distribution-Company.doc File type: application/msword Price: $4
