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The Board of Directors for the New Britain Plumbing Supply Company voted to acquire a new fuel cell ( FC ) powered forklift truck for
The Board of Directors for the New Britain Plumbing Supply Company voted to acquire a new fuel cell FC powered forklift truck for its extensive warehouse. The Board directed the CEO to investigate two options for this acquisition.Option #The FC forklift trucks purchase price is $ which the Board approved obtaining a loan from its bank at interest. The loan terms are:Four equal installments that are payable at the end of each yearUnder the borrowtopurchase arrangement, the Company will have to maintain the truck at an annual cost of $ which is also payable at the end of the year.Option #This Option is an operating lease alternative. It would be fouryear lease having yearly payments of $ These payments would be due at the beginning of each year. However, the forklift truck would be maintained by the lessor.The forklift truck has a fiveyear MACRS classification and a salvage market value estimated to be $ after four years. The Board expects to replace the forklift truck after four years irrespective of whether it leases or buys. The Company has a marginal tax rate of and a MARR of To best understand the economic consequences of these two Options, the Board asked the CEO the following questions What is the Present Worth cost for leasing the forklift truck?What is the Present Worth cost for owning the forklift truck?What is the CEOs recommendation for leasing or purchasing the truck?
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