Question 1)

Nascar Company has two alternatives for a new truck investment: Buy or lease.

Buying option:

The purchasing cost of the truck is 230.000 dollars.

The economic life will be five years and at the end fifth year the truck will have a salvage value, 40.000 dollars

Repair and insurance costs:

1.year 10.000 dollars

2.year 15.000

3.year 20.000

4.year 25.000

5.year 28.000

Leasing option:

Lease period: 5 years

Annual lease payments: 60.000 dollars (payments will be made at the beginning of each year)

Also, at the beginning of contract period Nascar Co. must pay a deposit, 20.000 dollars. This deposit amount will be refunded at the end of fifth year.

According to the leasing contract all repair and insurance expenses are under the responsibility of leasing company.

Make your decision according to Net Present Value Method. (Assume the discount rate of the company is 12%)

Present value of 1 dollar

Period Discount rate (12%)

1 0,893

2 0,797

3 0,712

4 0,636

5 0,567