Treadway Moving Service specializes in transferring sensitive electronic instruments.

The prospect of some new 3-D dual-material prototyping machines exists but the trailer setup is just over $125,000 to purchase.

The investment is still appealing since Boston Consulting Group surveys show that the business can expect to grow for at least another 10 years. Treadway's marginal tax rate is 40% and they have a fairly good credit rating so they obtain a loan for two trailers at a 10% interest rate for a 60-month loan. The depreciation schedule for the trailer is shown below.

Leasing is popular, and it turns out the dealer will lease to Treadway.

The annual payment for two trailers was quoted at $45,000, and after some debate the purchase option at lease-end was set at 1/5 of cost

($25,000 for each trailer). If Treadway has to absorb all taxes, maintenance, and insurance, is leasing the best option for Treadway?

Transcribed Image Text:

Year % of cost 1 40% 2346 2 35% 30% 20% 5 10%