Question

a. Mark can sell the bike through a partner for $75,000 less a 6% partner commission. Also, Ray has offered to lease the bike for five years for a total of $80,000. If the truck is leased to Ray, Mark will go through maintenance, insurance, and license expenses estimated at $12,000 over the five-year lease period. At lease-end, the bike is expected to have no residual value. What is the increase or decrease in net income for 5 years if the truck is leased to Ray rather than selling it.

Follow Up:

Ray is considering disposing of the bike (asset) that had an original cost $570,000. Straight-line depreciation expense for the machine is $57,000 per year, and it has an estimated remaining useful life of five years. The bike can be sold for $91,500. A new bike with a purchase price of $667,000 is being considered as a replacement. It will have a useful life of five years and no residual value. Estimated annual variable manufacturing costs will be reduced from $210,000 to $86,000 if the new bike is acquired. What is the increase or decrease in Ray's net income for the entire five years if the new machine is acquired.

Answer 1