Financial Engineering

Question 3

A small business is trying to decide whether it should purchase or lease a delivery truck. The cost to purchase a delivery truck is $100,000; it would be depreciated as 5-year MACRS property and would cost $6,000 per year to operate and maintain. The company plans to keep it for 7 years, at which point it would have a salvage value of $8,000. Alternatively, the small business could lease a delivery truck for $20,000 per year with payments due at the beginning of each year. Maintenance is included in the cost of the lease but operating costs would be $4,000 per year. The delivery truck would be leased for 7 years. Assuming an after-tax MARR of 8% and a tax rate of 30%, compute the PW of each alternative and determine whether the small business should purchase or lease the delivery truck.

(a) What is the present worth of the purchase alternative? What is the present worth of the lease alternative? Make a detailed spreadsheet table of all the components. Indicate all the formulas. Carry all interim calculations to 5 decimal places and then round final answer to a whole number.

(b) Should the small business should purchase or lease the delivery truck? Yes. No. Not enough information.

I need the answer ASAP. The wrong answer will get downvoted. Thanks.