Question

Aurian rents trucks for his hauling service and pays $14 per hour for a truck. He...

Aurian rents trucks for his hauling service and pays $14 per hour for a truck. He rents the trucks on an asneeded basis about twice per week. His daily cost of capital is 0.04% and he rents a truck today for 2 hours, two days from now for 4 hours, and 4 days from now for 8 hours. If his tax rate is 7%, then what is the present value of his after-tax lease payments?

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Answer #1

The following can be calculated in excel as shown below.

Daily Cost of capital 0.04%
Per Hour Rate 14
Tax Rate 7%
Today 2 hours 2 days from now- 4 hours 4 days from now 8 hours
Revenue (Per Hour Rate* No of Hours) 28 56 112
After Tax Revenue (Revenue-Revenue*Taxrate) 26.04 52.08 104.16
Present Value (After Tax Revenue/(1+cost of capital)^ no of days) 26.04 52.03836099 103.9935105
Present Value After Tax Payment (sum all present value) 182.0718715

From the table it can be seen that present value of after tax lease payment = 182.07 $

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