DirectJet is evaluating a lease agreement for an aircraft push truck that costs $150,000 and falls into
Question:
DirectJet is evaluating a lease agreement for an aircraft push truck that costs $150,000 and falls into the MACRS five-year class. DirectJet is in a 35 percent tax bracket, and can borrow the money at 8 percent and amortize the loan over the six-year period if it decides to buy rather than lease. The loan payments would be made at the end of the year. The truck has a six-year economic life and its estimated residual value is $70,000. If DirectJet were to buy the push truck, it would purchase a maintenance contract that costs $3,500 per year, payable at the end of each year. The lease terms, which include maintenance, call for a $35,000 lease payment at the beginning of each year. Should DirectJet buy or lease?
Step by Step Answer:
Foundations Of Airline Finance
ISBN: 9780415743259
2nd Edition
Authors: Bijan Vasigh, Kenneth Fleming, And Barry Humphreys