The ABc Corporation is evaualting a potential lease agreement on a truck that costs 40,000 and falls

into the Marcs 5 year class. The loan rate on the truck would be 10% if ABC decided to borrow and buy rather that lease and the loan would require 5 equal payments due at the end of the year. The truck has a 5 year economic life an an estimated residual value of $10,000 If ABC buys the truck it would purchase a maintenance contract which costs 1000 per year payable at year end The terms lease which include maintenance call for a 10,000 lease pymt at the begininng of each year should they lease por purchase show your work

The ABc Corporation is evaualting a potential lease agreement on a truck that costs 40,000 and falls?

Truck costs $40,000

Buy:

Loan = $40,000

Interest = 10% X 5 X $40,000 = $20,000

Total repayment = $60,000

Annual repayment = $60,000 / 5 = $12,000

Residual Value = $10,000

Maintenance = $1,000

Total outgoing annual payment = $13,000 at end of year

Present value = 13,000/1.1 + 13,000/(1.1)^2 + 13,000/(1.1)^3 + 13,000/(1.1)^4 + (13,000 - 10,000)/(1.1)^5 = $43,071

Lease:

Present Value = 10,000 + 10,000/1.1 + 10,000/(1.1)^2 + 10,000/(1.1)^3 + 10,000/(1.1)^4 = $41,699

Answer = lease

The ABc Corporation is evaualting a potential lease agreement on a truck that costs 40,000 and falls?

Thanks, I worked the problem an come up with the same senario to lease. Thanks, Report It

The ABc Corporation is evaualting a potential lease agreement on a truck that costs 40,000 and falls?

to buy 40000@10%for 5 years with 1000 per year maintenence

interest=principal*rate*time=(40000)(.... so principal+interest=60000 over 5 years is 12000 per year on loan and 1000 per year maintenence so 13000 per year. in 5 years this is 65000. i assume %26quot;residual value%26quot; means it can be sold after 5 years for the 10000 as claimed therefore ABC is looking at a net expenditure of 65000-10000=55000 to buy outright

to lease 10000 a year for 5 years is 50000 maintenence is included and no residual value can be recouped by ABC

unless there is some adjustment due to the nuance between words %26quot;at the end%26quot; and words %26quot;at the beginning%26quot; of the year i conclude that ABC should LEASE NOT BUY due to the 5000 that ABC would save according to these calculations. I am not in the business of corporate equipment aquisition this is just my own observation based on the information provided