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You own a car rental company, and you have two options to replace your fleet. For each car, you can either enter into a five
You own a car rental company, and you have two options to replace your fleet. For each car, you can either enter into a fiveyear lease for $ per year aftertax or you can purchase the car for $ You believe the cars will last for years. The lease payments cover maintenance costs, and lease payments are made at the beginning of each year. If you buy the cars, you will pay for a maintenance contract on each car and get tax benefits from depreciating the cars. Your net cash flow aftertax for maintenance and depreciation on a purchased car is $ per year paid at the beginning of each year Your required return on this investment is Assume that you will continue to lease or purchase cars in the future at similar rates. Should you lease or purchase the cars?
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