Question
Leadville Corporation needs to replace a delivery truck that is nearly 10 years old. The Company is considering whether to purchase the replacement van or
Leadville Corporation needs to replace a delivery truck that is nearly 10 years old. The Company is considering whether to purchase the replacement van or lease a similar van from a leasing company. If the Company decides to purchase the vehicle, it will cost $355,000 with an estimated residual value of $55,000 at the end of year 10. If you decide to lease the vehicle, you will make 9 annual payments of $40,000, starting today. Assume a discount rate of 6.5%. a. Calculate the net present value of the lease payments versus the cash flows from the purchase. Which is preferable? b. What is the largest annual lease payment you would be willing to make to leasing more attractive? (hint: Goal Seek and please include screenshot of dialog box)
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