Question

Keating Co. is considering disposing of equipment with a cost of $77,000 and accumulated depreciation of $53,900. Keating Co. can sell the equipment through a broker for $28,000 less 5% commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $47,000. Keating will incur repair, insurance, and property tax expenses estimated at $12,000 over the five-year period. At lease-end, the equipment is expected to have no residual value. The net differential income from the lease alternative is $10,080 $5,880 $12,600 $8,400

Answer 1

$8,400

Step-by-step explanation:

net differential income = total lease revenue - costs associated to leasing the equipment - net selling price

• total lease revenue = $47,000
• costs associated to lease = $12,000
• net selling price = $28,000 x (1 - 5%) = $26,600

net differential revenue = $47,000 - $12,000 - $26,600 = $8,400