1. Karuda Transportation Sdn Bhd provides bonded trucking services to its clients. The company is evaluating a potential lease arrangement on a truck that cost $250,000 and falls into the MACRS 5-year class. The applicable MACRS depreciation rates are 20%, 32%, 19%, 12%, 11% and 6%. Karuda has a ready credit line from their banker, a term loan financing with an attractive rate of 10% p.a. if they decided to borrow money and buy the asset rather than lease it. The 5-equal instalments are to be paid at the end of each year. The truck is expected to have a 5-year economic life, and its estimated residual value is $25,000. If Karuda buys the truck, it would purchase a maintenance contract with the Vendor, Scandia Truck & Bus Sdn Bhd that costs $6,000 per year, payable at the end of each year. Karuda plans to keep the truck and use it beyond its recovery period. Karuda is also required to insure the trucks and the annual insurance premium is calculated at a rate of 1.75% of the insured value. For the first year, the truck is insured for $250,000. For the subsequent years, the book value of the asset is taken as the yearly insured value. Annual insurance premium are being paid at the beginning of the year. 14