Question - Sure-Bilt Construction Company is considering selling excess machinery with a book value of $280,100 (original cost of $399,800 less accumulated depreciation of $119,700) for $275,500, less a 5% brokerage commission. Alternatively, the machinery can be leased for a total of $285,000 for five years, after which it is expected to have no residual value. During the period of the lease, Sure-Bilt Construction Company's costs of repairs, insurance, and property tax expenses are expected to be $24,900.
a. Prepare a differential analysis, dated January 3, 2012, to determine whether Sure-Bilt should lease (Alternative 1) or sell (Alternative 2) the machinery.
b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain.