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Benton Transport can lease a truck for four years at a cost of $48,000 annually (assuming lease payment occurring at the end of each year).
Benton Transport can lease a truck for four years at a cost of $48,000 annually (assuming lease payment occurring at the end of each year). It can instead buy a truck at a cost of $98,000, with annual maintenance expenses of $28,000. The truck will be sold at the end of four years for $29,500. Ignore taxes and assuming the maintenance expenses needs to be paid at the end of each year. Also, for the truck to be sold at $29,500 at the end of four years, maintenance needs to be done at the fourth year as well prior to the sale. If the discount rate is 10%, should Benton Transport lease a truck or purchase and maintaining a truck? Lease, as EAC of purchasing and maintain a truck at 10% discount rate is higher than the annual leasing cost. Lease, as EAC of purchasing and maintain a truck at 10% discount rate is lower than the leasing price. Purchase, as EAC of purchasing and maintain a truck at 10% discount rate is higher than the annual leasing cost. Purchase, as EAC of purchasing and maintain a truck at 10% discount rate is lower than the annual leasing cost.
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