Afour-year-old truck has a present net realizable value of $6,000 and is now expected to have a market value of $1,800 after its remainingthree-year life. Its operating disbursements are expected to be $740 per year.

An equivalent truck can be leased for $0.40 per mile plus $25 a day for each day the truck is kept. The expected annual utilization is 3,000 miles and 30 days. The effective income tax rate is 45%, the present book value is $5,000, and the depreciation charge is $1,100 per year if the firm continues to own the truck. If any gains or losses on disposal of the old truck affect taxes at the full 45% rate, and theafter-tax MARR is 6%, find which alternative is better by comparingafter-tax equivalent PWs

(a) The after-tax PW for keeping the old truck is?

• The after-tax PW for leasing a truck is ?

Which alternate is better?

• lease
• Buy

(b) The after-tax PW for operating without a truck is?

Which alternate is better?

• Operate without a truck
• Lease