Question

Joshua Trucking has chosen a new software package tied to satellite global positioning system (GPS), to monitor its fleet. The software will be outdated after three years and replaced. The software vendor has given Joshua Trucking the choice of buying the software for $60,000 or leasing it for an annual payment of $25,000. To attract customers, the GPS vendor allows lease payments at year-end. The firm has decided to purchase the vendor’s service contract under either option. Assume that depreciation is on a straight-line basis, Joshua Trucking’s cost of obtaining funds is 9%, and the firm is in the 34% tax bracket. Should it borrow and buy or lease the GPS software?

Answer 1