Question

The Porter Beverage Factory owns a building for its operations. Porter uses only half of th ebuilding and is considering two options for the unused space. The Popcorn Store would like to purchase the half of the building that is not being used for $390,000. A 9% commission would have to be paid at the time of purchase. Salty Snacks would like to lease the half of the building for the next 5 years at $103,000 each year. Stewart would have to continue paying $38,600 of property taxes each year and $7,400 of yearly insurance on the property, according to the proposed lease agreement.

Determine the differential income or loss from the lease alternative.
Enter a loss as a negative number.

Answer 1

The differential loss from the lease alternative would be -$69,900

Step-by-step explanation:

In order to calculate the differential income or loss from the lease alternative we would have to make the following calculations:

Alternative I ( Sale) Alternative II ( Lease)

Sale proceeds net of commission $354,900

Total lease rentals $515,000

Property taxes and insurance ($230,000)

Net proceeds $354,900 $285,000

Difference loss from the lease alternative would be - $69,900

The differential loss from the lease alternative would be -$69,900