Ch19-4. Alaska Truck Company (ATC) is evaluating a potential lease for a truck with a 4-year life that costs $40,000 and falls into the MACRS 3-year class. If the firm borrows and buys the truck, the loan rate would be 10%, and interest is paid at the end of each year and the loan will paid at the end of year 4. The truck will be used for 4 years, at the end of which time it will be sold at an estimated residual value of $10,000. If ATC buys the truck, it would purchase a maintenance contract that costs $1,000 per year, payable at the end of each year. If ATC leases the truck, the lease terms, which include maintenance, call for a $10,000 lease payment (4 payments total) paid at the beginning of each year. ATC's tax rate is 40%. Should the firm lease or buy? In your calculations show the Net Advantage to Leasing. (Note: MACRS rates for Years 1 to 4 are 0.33, 0.45, 0.15, and 0.07.
Mortgages
A mortgage is a formal agreement in which a bank or other financial institution lends cash at interest in return for assuming the title to the debtor's property, on the condition that the obligation is paid in full.
Mortgage
The term "mortgage" is a type of loan that a borrower takes to maintain his house or any form of assets and he agrees to return the amount in a particular period of time to the lender usually in a series of regular equally monthly, quarterly, or half-yearly payments.
Ch19-4. Alaska Truck Company (
If ATC leases the truck, the lease terms, which include maintenance, call for a $10,000 lease payment (4 payments total) paid at the beginning of each year. ATC's tax rate is 40%.
Should the firm lease or buy? In your calculations show the Net Advantage to Leasing.
(Note: MACRS rates for Years 1 to 4 are 0.33, 0.45, 0.15, and 0.07.)
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