The salvage value of the truck at the end of the period amounts to R50 000 and the company uses the straight line method of depreciation. Note: a. The after tax cost of debt is 10%. b. The tax rate is 30%. Required 4.1 Calculate the cost of owning and leasing using the discounted cash flow method. 4.2 Advise on the option to adopt, with justification.
The salvage value of the truck at the end of the period amounts to R50 000 and the company uses the straight line method of depreciation. Note: a. The after tax cost of debt is 10%. b. The tax rate is 30%. Required 4.1 Calculate the cost of owning and leasing using the discounted cash flow method. 4.2 Advise on the option to adopt, with justification.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:The salvage value of the truck at the end of the period amounts to R50 000 and the
company uses the straight line method of depreciation.
Note:
а.
The after tax cost of debt is 10%.
b.
The tax rate is 30%.
Required
4.1
Calculate the cost of owning and leasing using the discounted cash flow method.
4.2
Advise on the option to adopt, with justification.
Transcribed Image Text:QUESTION FOUR
One Stop Transport is considering the purchase of a new 4 ton truck for R400 000.
Alternatively, the truck can be leased on a five year contract for R110 000 p.a.
If the truck is owned, the service and maintenance charges will amount to R16 000 per
annum and will be borne by the owner, whereas, the leasing charges are inclusive of
maintenance.
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