Mr. Puffins Muffins is considering buying a new delivery truck.

Two options are being considered.

Option 1: The new truck will cost $95,000. It has an expected life of seven years, salvage value of $9,000 and will be depreciated using the straight line method.

At the end of the seven year the truck will be sold.

Option 2: Instead of paying the $95,000 all at once, a second option is to lease a truck for $25,000 down and $15,000 a year for 7 years. At the end of the lease a disposition fee of $800 will be paid.

With either option, the new truck is expected to generate cost savings of $20,000 in cash flows for each of the seven years of operations.

Mr. Puffins Muffins cost of capital is 12%.

The company uses NPV to evaluate capital projects.

Based on the NPV, which option should the company pursue and why?