Office Supplies (OS) Distributors needs a new truck. It can buy it for $24,000, depreciate it over four years at an annual rate of $6,000, and finance the purchase with a four-year loan at 10 percent. The truck could be sold for $5,000 in four years. Alternatively, it can lease the truck and make four annual lease payments of
$6,500 (payments are made at the beginning of the year). OS Distributors is subject to a 40 percent corporate tax rate and is responsible for the maintenance and insurance of the truck, regardless of whether it leases or buys.
a. Should OS Distributors lease or buy the truck?
b. What resale value of the truck in four years will make OS Distributors indifferent about buying versus leasing?

  • CreatedMarch 27, 2015
  • Files Included
Post your question