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The Prescott Welding Company needs to acquire a new lift truck for transporting its final product to the warehouse. One alternative is to purchase the truck for $47,000, which will be financed by the bank at an interest rate of 14%. The loan must be repaid in four equal installments, payable at the end of each year. Under the borrow-to-purchase arrangement, Prescott Welding would have to maintain the truck at an annual cost of $1,600, also payable at year-end. Alternatively, Prescott Welding could lease the truck under a four-year contract for a lease payment of $23,000 per year. Each annual lease payment must be made at the beginning of each year. The truck would be maintained by the lessor. The truck falls into the five-year MACRS classification, and it has a salvage value of $11,000, which is the expected market value after four years, at which time Prescott Welding plans to replace the truck, irrespective of whether it leases or buys. Prescott Welding has a marginal tax rate of 35% and a MARR of 15%. Click the icon to view the MACRS depreciation schedules. Click the icon to view the interest factors for discrete compounding when i = 14% per year.

The Prescott Welding Company needs to acquire a new lift truck for transporting its final product to the warehouse. One alternative is to purchase the truck for $47,000, which will be financed by the bank at an interest rate of 14%. The loan must be repaid in four equal installments, payable at the end of each year. Under the borrow-to-purchase arrangement, Prescott Welding would have to maintain the truck at an annual cost of $1,600, also payable at year-end. Alternatively, Prescott Welding could lease the truck under a four-year contract for a lease payment of $23,000 per year. Each annual lease payment must be made at the beginning of each year. The truck would be maintained by the lessor. The truck falls into the five-year MACRS classification, and it has a salvage value of $11,000, which is the expected market value after four years, at which time Prescott Welding plans to replace the truck, irrespective of whether it leases or buys. Prescott Welding has a marginal tax rate of 35% and a MARR of 15%. Click the icon to view the MACRS depreciation schedules. Click the icon to view the interest factors for discrete compounding when i = 14% per year.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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The Prescott Welding Company needs to acquire a new lift truck for transporting its final product to the warehouse. One alternative is to purchase the truck for $47,000, which will be financed by the bank at an interest rate of 14%. The loan must be repaid in four equal installments, payable at the end of each year. Under the borrow-to-purchase arrangement, Prescott Welding would have to maintain the truck at an annual cost of $1,600, also payable at year-end. Alternatively, Prescott Welding could lease the truck under a four-year contract for a lease payment of $23,000 per year. Each annual lease payment must be made at the beginning of each year. The truck would be maintained by the lessor. The truck falls into the five-year MACRS classification, and it has a salvage value of $11,000, which is the expected market value after four years, at which time Prescott Welding plans to replace the truck, irrespective of whether it leases or buys. Prescott Welding has a marginal tax rate of 35% and a MARR of 15% Click the icon to view the MACRS depreciation schedules. Click the icon to view the interest factors for discrete compounding when /= 14% per year. Click the icon to view the interest factors for discrete compounding when i=15% per year. (a) What is Prescott Welding's cost of leasing in present worth? The present worth of leasing the lift truck is $ (b) What is Prescott Welding's cost of owning in present worth? The present worth of owning the lift truck is $ (c) Should the truck be leased or purchased? Choose the correct answer below. The truck should be purchased. The truck should be leased. thousand. (Round to one decimal place.) thousand. (Round to one decimal place.)
Transcribed Image Text:The Prescott Welding Company needs to acquire a new lift truck for transporting its final product to the warehouse. One alternative is to purchase the truck for $47,000, which will be financed by the bank at an interest rate of 14%. The loan must be repaid in four equal installments, payable at the end of each year. Under the borrow-to-purchase arrangement, Prescott Welding would have to maintain the truck at an annual cost of $1,600, also payable at year-end. Alternatively, Prescott Welding could lease the truck under a four-year contract for a lease payment of $23,000 per year. Each annual lease payment must be made at the beginning of each year. The truck would be maintained by the lessor. The truck falls into the five-year MACRS classification, and it has a salvage value of $11,000, which is the expected market value after four years, at which time Prescott Welding plans to replace the truck, irrespective of whether it leases or buys. Prescott Welding has a marginal tax rate of 35% and a MARR of 15% Click the icon to view the MACRS depreciation schedules. Click the icon to view the interest factors for discrete compounding when /= 14% per year. Click the icon to view the interest factors for discrete compounding when i=15% per year. (a) What is Prescott Welding's cost of leasing in present worth? The present worth of leasing the lift truck is $ (b) What is Prescott Welding's cost of owning in present worth? The present worth of owning the lift truck is $ (c) Should the truck be leased or purchased? Choose the correct answer below. The truck should be purchased. The truck should be leased. thousand. (Round to one decimal place.) thousand. (Round to one decimal place.)
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