1. Differential analysis: Leasing or selling Ryan Inc. is a printing company tha

Question

1. Differential analysis: Leasing or selling

Ryan Inc. is a printing company that has equipment used to print boxes, magazines, newspapers, and pamphlets. The company's president has decided that her company will no longer offer pamphlet-printing services because the profit is insufficent. She is currently deciding whether to sell or lease the pamphlet printing equipment to another company that has expressed an interest in it. The following table includes the information that is relevant to this decision as of December 31,2013. (Note: Ignore income taxes and differential revenue from investing funds.)

Conduct a differential analysis whether Ryan should sell or lease the printing equipment, and then answer the following questions.

Please complete the following question:

Given the two alternatives, what is the differential revenue that Ryan's president should consider in her decision?

Original cost of equipment $348,000 Accumulated depreciation as of 12/31/2013 261,000 Lease Option Total revenue for three-year lease 255,000 Estimated repairs and insurance expense during the three-year lease 36,700 Expected residual value of the equipment at th end of the three-year lease 0 Selling Option Sales price 325,000 Sales commission 2%

Explanation / Answer

Differential revenue that Ryan's president should consider in her decision = $100,200

Answer

$100,200

If it leased It it sold Differential Total revenue for three-year lease 255000 -255000 Estimated repairs and insurance expense during the three-year lease -36700 36700 Sales price 325000 325000 Sales commission -6500 -6500 Net differential revenue 100200

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