RestJet is evaluating a potential lease agreement on a push truck that costs $2 million and falls
Question:
RestJet is evaluating a potential lease agreement on a push truck that costs $2 million and falls into the MACRS three-year class. The applicable MACRS depreciation rates are 0.33, 0.45, 0.15, and 0.07. The loan rate would be 6 percent, if RestJet were to decide to borrow money and buy the asset rather than lease it. The push truck has a four- year economic life and its estimated residual value is $500,000. If RestJet buys the truck, it would purchase a maintenance contract that costs $50,000 per year, payable at the end of each year. The lease terms, which include maintenance, call for a $500,000 lease payment at the beginning of each year. RestJet's tax rate is 38 percent. Should the airline lease or buy?
Step by Step Answer:
Foundations Of Airline Finance
ISBN: 9780415743259
2nd Edition
Authors: Bijan Vasigh, Kenneth Fleming, And Barry Humphreys