White Way Stores Inc. _Decision to operate retail store

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On October 1, White Way Stores Inc.
is considering leasing a building and purchasing the necessary equipment to
operate a retail store. Alternatively, the company could use the funds to
invest in $180,000 of 6% U.S. Treasury bonds that mature in 16 years. The bonds
could be purchased at face value. The following data have been assembled:

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Required:

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1.
Prepare a differential analysis as
of October 1, 2014, presenting the proposed operation of the store for the 16
years (Alternative 1) as compared with investing in U.S. Treasury bonds
(Alternative 2). If an amount is zero, enter zero “0”.

Differential
Analysis

Operate
Retail Store (Alt. 1) or Invest in Bonds (Alt. 2)

October
1, 2014

Operate
Retail Store (Alternative 1)

Invest
in Bonds (Alternative 2)

Differential
Effect on Income (Alternative 2)

Revenues

$

$

$

Costs:

Costs
to operate store

Cost
of equipment less residual value

Income
(Loss)

$

$

$

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2. Based on the results disclosed by
the differential analysis, should the proposal to operate the retail store be
accepted?

3. If the proposal is accepted, what
would be the total estimated income from operations of the store for the 16
years?
$

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