Carolina Trucking Company (CTC) is evaluating a potential lease for a truck with a 4-year life that costs $40,000 and falls into the MACRS 3-year class.  If the firm borrows and buys the truck, the loan rate would be 9%, and the loan would be amortized over the truck's 4-year life.  The loan payments would be made at the end of each year.  The truck will be used for 4 years, at the end of which time it will be sold at an estimated residual value of $12,000.  If CTC buys the truck, it would purchase a maintenance contract that costs $1,500 per year, payable at the end of each year.  The lease terms, which include maintenance, call for a $10,000 lease payment (4 payments total) at the beginning of each year. CTC's tax rate is 35%.  What is the net advantage to leasing?

Answer rating: 100% (QA)

To calculate the net advantage to leasing we need to compare the costs and benefits of leasing versus borrowing and buying the truck We will consider ... View the full answer