In the past few years, some of the largest technology and car manufacturing companies have made significant advancement in autonomous vehicles. Lyft Inc., another popular ride-sharing company, is considering deploying this new technology in its services to compete with Uber. Suppose Lyft can lease their fleet of autonomous vehicles from Volvo, for $9,000/year per car for four years under an operating lease. This cost includes maintenance programs, and unlimited mileages. Alternatively, it can purchase the each vehicle for $40,000. Assume Lyft has a borrowing cost of 4% and a tax rate of 35%, and the car will can be sold for 20% its initial value at the end of six years.

(i) (6 marks) If Lyft will depreciate (for tax purposes) the fleet of cars on a 150% declining balance basis over the next six years, and if the operating lease qualifies as a true tax lease, is it better to finance the purchase of the equipment or to lease it?

(ii) (7 marks) Suppose that if Lyft buys the fleet of cars, it will use accelerated depreciation for tax purposes. Specifically, the CCA rate will be 45% and any undepreciated capital cost (UCC) in year 6 will be taken as a terminal loss. Compare leasing with purchase in this case.

(iii)(2 marks) What other factors should Lyft consider when evaluating leasing vs. buying a fleet of autonomous vehicles?