Your company owns a truck that is no longer being used. Since this depreciating asset is not generating any income, you would like to either sell it or lease it. The current value of the truck is $70,000.

If you sell the truck, you receive 100% of the truck’s value today.

If you lease the truck to your friend’s company, you pay a $1,000 fee today to set up the lease. The monthly lease you receive is $1,000. You pay for the 12-monthly $1,000 maintenance, which is due in months 12, 24, 36, 48, and 60. At the end of 5 years, the truck is returned to you. At this point, you know you will sell the truck for its residual value, $25,000. You have access to an investment product that yields 3% per annum. In the selling scenario, you receive payment at the end of the next period (Time 1 in the worksheet). The first lease payment also occurs at the end of the next period (i.e., Time 1 in the worksheet).

(a) Construct a financial model in the “Modelling” worksheet. Based on the assumptions above, and evaluated at the end of year 5, is selling or leasing the truck the better option?

1. (b) Due to changing inflation expectations you are unsure about the residual value of your truck. Keeping all other model parameters constant, which residual value makes you indifferent between selling and leasing? In other words, which residual value corresponds to a $0 difference between selling and leasing? Document your steps carefully.
2. (c) Discuss a methodological limitation of your model.
3. (d) Discuss which other variables you could potentially add to your model.
4. 
   

Answer rating: 100% (QA)

the carrent valuo of truckk is 0000 The answer is B Coo00 changing inflatton e... View the full answer