A company has decided to acquire a new truck. One alternative is to lease the truck on a 4-year contract for a lease payment of $10,000 per year, with payments to be made at the beginning of each year. The lease would include maintenance. Alternatively, the company could purchase the truck outright for $40,000, financing with a bank loan for the net purchase price, amortized over a 4-year period at an annual interest rate of 10%, payments to be made at the end of each year. Under the borrow-to-purchase arrangement, the company would have to maintain the truck at a cost of $1,000 per year, payable at year-end. The truck falls into the MACRS 3-year class. It has a salvage value of $10,000, which is the expected market value after 4 years, at which time the company plans to replace the truck irrespective of whether it leases or buys. The company has a federal-plus-state tax rate of 40%. [MACRS: 1Y – 33%, 2Y – 45%, 3Y – 15%, 4Y – 7%]A) What is the company’s PV cost of leasing?B) What is the company’s PV cost of owning?C) Should the company purchase or lease? Why?D) The salvage value is the least certain cash flow in the analysis. How might the company incorporate the higher riskiness of this cash flow into the analysis?
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.Read more
Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.Read more
Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.Read more
Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.Read more
By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.Read more