Question 15 (10 points) Good Ship Service (GSS) is planning to expand its operations in upstate New York. The company has estimated that it will need a new fleet of trucks for the proposed plan. The new trucks can either be leased or purchased. If GSS purchases the new trucks, their upfront cost will be $300,000 in total, and they will require $45,000 in maintenance at the end of years 2 , 4 , and 7. The useful life of the trucks is estimated to be 8 years, after which all of them can be sold for a total of $40,000. Leasing the trucks will require annual payments of $55,000. The lease requires that payments be made at the beginning of each year for the duration of the lease, which is 8 years. GSS uses a discount rate of 5%. Use the above information to calculate the following: [Note: Round your answers to TWO decimal places. Do not include symbols (\$) or commas in your answers. Write only POSITIVE numbers - e.g. even if Excel gives you 253.42, write 253.42 ] A) Present value of the purchase option is: \$[Blank 1] B) Present value of the lease option is: \$[Blank 2] C) Which option should GSS choose? [Write 1 if Purchase or 2 if Lease] = [Blank 3] D) If the lease payments were instead due at the end of the year rather than the beginning of the year, ignoring the buy option, does the lease option become more or less attractive? [Write 1 if More, 2 if Less, or 3 if the Same] = [Blank 4] Blank # 1 A Blank # 2 Blank # 3 Question 15 (10 points) Good Ship Service (GSS) is planning to expand its operations in upstate New York. The company has estimated that it will need a new fleet of trucks for the proposed plan. The new trucks can either be leased or purchased. If GSS purchases the new trucks, their upfront cost will be $300,000 in total, and they will require $45,000 in maintenance at the end of years 2 , 4 , and 7. The useful life of the trucks is estimated to be 8 years, after which all of them can be sold for a total of $40,000. Leasing the trucks will require annual payments of $55,000. The lease requires that payments be made at the beginning of each year for the duration of the lease, which is 8 years. GSS uses a discount rate of 5%. Use the above information to calculate the following: [Note: Round your answers to TWO decimal places. Do not include symbols (\$) or commas in your answers. Write only POSITIVE numbers - e.g. even if Excel gives you 253.42, write 253.42 ] A) Present value of the purchase option is: \$[Blank 1] B) Present value of the lease option is: \$[Blank 2] C) Which option should GSS choose? [Write 1 if Purchase or 2 if Lease] = [Blank 3] D) If the lease payments were instead due at the end of the year rather than the beginning of the year, ignoring the buy option, does the lease option become more or less attractive? [Write 1 if More, 2 if Less, or 3 if the Same] = [Blank 4] Blank # 1 A Blank # 2 Blank # 3
