Differentialanalysis for a lease or sell decision Granite Co

Differentialanalysis for a lease or sell decision Granite Construction Company is considering selling excess machinery with a book value otf (Original cost of S315,000 less accumulated depreciation of $140,000) for si 80,000, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $200,000 forfour years, after which it is expected to have no residual value. During the period of the lease, Granite Construction Company\'s costs of repairs, insurance, and property tax expenses are expected to be $24,400. 1. 0Prepare a differentialanalysis, dated November 7 to determine whether Granite should iease Alternative 1) or sell (Alternative 2) the machinery Use the template attached to complete. Note: this template will not display an asteriskif incorrect.

Solution

Differential analysis Sell Lease Net effect on income Sale value of machinery 180000 -180000 Selling expense @ 5% -9000 9000 Lease rentals for four years 200000 200000 Repairs cost, taxes etc -34400 -34400 Net income 171000 165600 -5400 Hence, The company shall sold off the machinery today