Purchase Option:

Cost

$85,000

Estimated residual value, 3 years

$40,000

Annual interest rate

3.5%

Down Payment

$0

Annual, end-of-year (for simplicity) loan payments

$30,339

prepare work depicting discounted cash-flow analyses of the two options to determine if Donald would minimize the present value of her after-tax costs by purchasing or leasing the car.In making your calculations, assume the following:

is in the 32% marginal tax bracket for all years;

Car is 100% business use;

January 1 decision date;

6% discount rate to compute the present value of future cash flows;

If Donald purchases the auto

Use the 2019 depreciation limits for passenger autos in Rev Proc 2019-26; year 1: $18,100, year 2 : 16,100, year 3: 9,700

He will sell it at the end of 3 years for the estimated residual value quoted above;

compute a loan amortization table for the interest deduction;

the sale of a business vehicle generates ordinary income/loss.