Question
UPS is evaluating a potential lease agreement on a truck that costs $1,750 and falls into the MACRS 5- year class. UPS can borrow at
UPS is evaluating a potential lease agreement on a truck that costs $1,750 and falls into the MACRS 5- year class. UPS can borrow at 4%. The truck would be used for six years, and its estimated residual value is $480. If UPS buys the truck, it would purchase a maintenance contract that costs $30 per year, payable at the beginning of each year. The lease terms, which include maintenance, call for a $275 lease payment at the beginning of each year. The lease would be classified as an operating lease by the IRS. The tax rate is 21%. Should UPS lease or buy? Calculate the Net Advantage to Leasing.
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