Carolina Trucking Company (CTC) is evaluating a potential lease

 

Carolina Trucking Company (CTC) is evaluating a potential lease

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Carolina Trucking Company (CTC) is evaluating a potential lease for a truck with a 4-year life that costs $40,500 and falls into the MACRS 3-year class.  If the firm borrows and buys the truck, the loan rate would be 9%, and the loan would be amortized over the truck’s 4-year life.  The loan payments would be made at the end of each year.  The truck will be used for 4 years, at the end of which time it will be sold at an estimated residual value of $12,000.  If CTC buys the truck, it would purchase a maintenance contract that costs $1,500 per year, payable at the end of each year.  The lease terms, which include maintenance, call for a $10,000 lease payment (4 payments total) at the beginning of each year.  CTC’s tax rate is 35%.  What is the net advantage to leasing? (Note: MACRS rates for Years 1 to 4 are 0.33, 0.45, 0.15, and 0.07.)

Answer

[removed]$1,026
[removed]$1,111
[removed]$1,248
[removed]$1,058
[removed]$1,121

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