Analyze the cost of renting, leasing, and purchasing a backhoe loader using the data given below. Evaluate
Question:
Analyze the cost of renting, leasing, and purchasing a backhoe loader using the data given below. Evaluate after-tax cash flow and its present value.
Basic assumptions:
Marginal tax rate = 46%
After-tax rate of return = 7%
Planned equipment use = 2000 h/year for 5 years Present value factors (i = 7%)
Purchase assumptions:
Cost = $100,000 Estimated resale value after 5 years = $40,000 Cost recovery method = 5-year MACRS Down payment = $20,000 Loan terms = $80,000, 12%, 36 months = $2,657.20/month Interest payments:
Lease assumptions:
Term of lease = 5 years Lease payments = $1850/month Initial payment = 3 months in advance Rental assumptions:
Rental period = 5 years, month to month Rental rate = $3375/month
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