Question

AA Corp can lease a truck for four years at a cost of $25,000

annually. It can instead
buy a truck at a cost of $60,000, with annual maintenance expenses of
$10,000. The truck
will be sold at the end of four years for $12,000. Ignore taxes.
a. What is the equivalent annual cost of buying and maintaining the truck
if the discount rate is 10%?
b. Which is the better option: leasing or buying?

Answer 1

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LEASING:

= $25,000 × 4 Years

= $100,000

= 10% × $25,000 ÷ 100 - $25,000

= $22,500 × 4 Years

= $90,000

BUYING:

= $60,000 + $40,000

= $100,000

= 10% × $10,000 ÷ 100 - $10,000

= $9,000 × 4 Years

= $36,000 + $60,000

= $96,000

LEASING IS A BETTER OPTION

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