Your landscaping company can lease a truck for $8,000 a year (paid at year-end) for 6 years.

Question:

Your landscaping company can lease a truck for $8,000 a year (paid at year-end) for 6 years. It can instead buy the truck for $40,000. The truck will be valueless after 6 years. The interest rate your company can earn on its funds is 7%.

a. What is the cost of leasing?

b. Is it cheaper to buy or lease?

c. What if the lease payments are an annuity due, so the first payment comes immediately? Is it cheaper to buy or lease?

Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,...