Question 2

Your firm has determined that it should acquire the use of a new dump truck. Typically, these vehicles sell $100,000, last for 10 years, and then are salvaged for $15,000. They also require an average of $3000 per year in maintenance expenses (paid at year end). The seller has offered your company the option of a renewable 2-year operating lease with beginning-of-year payments of $16,000 that include all maintenance costs. Your bank has offered an 8% loan to purchase the vehicle. Assume your firm has already decided it must have the vehicle and that tax effects take place at the end of each year (it is simply a matter of how to finance its acquisition) With a 30% tax rate, and a CCA rate of 12%, should you lease or buy the dump truck?