Midway Distribution Company Term Paper

P25-1AOn March 1, Midway Distribution Company is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use thefunds to invest in $750,000of 7% U.S.Treasury bonds that mature in 14 years. The bonds could bepurchased at face value. The following data have been assembled: Cost of equipment $750,000 Lifeof equipment 14 years Estimated residual value of equipment $76,000 Yearly costs to operate thewarehouse, excluding depreciation of equipment $195,000 Yearly expected revenuesyears 17$330,000 Yearly expected revenuesyears 814 $280,000
Instructions
1. Prepare a report as of March 1, 2010, presenting a differential analysis of the proposed operation of the warehouse for the 14 years as compared with present conditions.
2. Based on the results disclosed by the differential analysis, should the proposal be accepted?
3. If the proposal is accepted, what is the total estimated income from operations of the warehouse for the 14 years?
 
 

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