Vanderhoff Construction Company is considering selling excess machinery with a b
ID: 2435514 • Letter: V
Question
Vanderhoff Construction Company is considering selling excess machinery with a book value of $260,000 (original cost of $380,000 less accumulated depreciation of $120,000) for $210,000, less a 4% brokerage commission. Alternatively, the machinery can be leased for a total of $240,000 for five years, after which it is expected to have no residual value. During the period of the lease, Vanderhoff Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $28,000.a. Prepare a differential analysis report, dated January 3, 2008 for the lease or sell decision.
Proposal to Lease or Sell Machinery
January 3, 2008
Differential revenue from alternatives:
Revenue from lease
Proceeds from sale
Differential revenue from lease
Differential cost of alternatives:
Repair, insurance, and property tax expenses
Commission on sale
Differential cost of lease
Net differential income from lease alternative
Explanation / Answer
Proposal to Lease or Sell Machinery January 3, 2008 Differential revenue from alternatives: Revenue from lease $240,000 Proceeds from sale $210,000 Differential revenue from lease $30,000 Differential cost of alternatives: Repair, insurance, and property tax expenses $28,000 Commission on sale $8,400 Differential cost of lease $19,600 Net differential income from lease alternative $10,400
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