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Prepare a differential analysis report: Devoe Construction

Devoe Construction Company is considering selling excess machinery with a book value of $280,000 (original cost of $400,000 less accumulated depreciation of $120,000) for $292,000, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $312,000 fr five years, after which it is expected to have no residual value. During this period of the lease, Devoe Construction Company's cost of repairs, insurance, and property tax expenses are expected to be $36,000.

a. Prepare a differential analysis report, dated January 3, 2010, for the lease or sell decision.

b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain

Solution Preview

a. Prepare a differential analysis report, dated January 3, 2010, for the lease or sell decision.

** See attached in Excel **

b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain

It is advisable to sell. ...

Solution Summary

Your tutorial creates a cash flow and profit forecast for both scenarios in Excel. Click in cells to see computations. A paragraph explains the recommendation.

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