Granite Construction Company is considering selling excess m

Granite Construction Company is considering selling excess machinery with a book value of $283,200 (original cost of $401,200 less accumulated depreciation of $118,000) for $274,000, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $283,400 for five 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 $24,600.

a. Prepare a differential analysis, dated November 7 to determine whether Granite should lease (Alternative 1) or sell (Alternative 2) the machinery.

Differential Analysis
Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2)
November 7
	Lease Machinery (Alternative 1)	Sell Machinery (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$	$	$
Costs
Income (Loss)	$	$	$

Solution

Differential Analysis Lease Machinery (Alt. 1) or Sell Machinery (Alt. 2) 7-Nov Lease Machinery (Alternative 1) Sell Machinery (Alternative 2) Differential Effect on Income (Alternative 2) Revenues 283400 274000 -9400 Costs -24600 -13700 10900 Income (Loss) 258800 260300 1500