Question
. GNL company wants to invest $5,000,000 in trucks but wishes to evaluate whether leasing is worthwhile. GNL drivers are very hard on their trucks
. GNL company wants to invest $5,000,000 in trucks but wishes to evaluate whether leasing is worthwhile. GNL drivers are very hard on their trucks such that they are worn out and have no residual value at the end of ten years. Armstrong Leasing has offered to lease the vehicles over a ten-year term for $500,000 per year. The company may also borrow the necessary funds using a ten-year term loan with an interest rate of 10%. Ignore the issue of insurance, maintenance, and other costs of ownership. If GNL buys the trucks outright, they will be able to claim CCA each year at 30% and obtain a corresponding tax shield of 40%. The UCCA for year one is 50% of the assets. Assume a discount rate of 5%. a. Should the company lease or buy the assets? (20 marks) b. Would you advise GNL company to buy or lease when the annual lease amount is $600,000? (20 marks
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