Question

A firm can lease a truck for 4 years at a cost of $43,000 annually. It...

A firm can lease a truck for 4 years at a cost of $43,000 annually. It can instead buy a truck at a cost of $93,000, with annual maintenance expenses of $23,000. The truck will be sold at the end of 4 years for $33,000.

a. What is the equivalent annual cost of buying and maintaining the truck if the discount rate is 10%?

Do not use excel. So your work!

b. Which is the better option? Buy or Lease

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Homework Answers

Answer #1

Part A:

EAC = PV of Cash Out flows / PVAF ( r%,n)

Part B:

Lease is advicable as Lease payment is less than EAC under buying option.

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