Question 1.) Consider a contractor deciding whether to buy or lease a crane using the following input and calculator. You can use this or any number of calculators available online:

Should I buy or lease equipment for my business?

Parameters to use are:

Purchase price: $500,000

8% sales tax rate

Depreciation years = 5

Useful life in years = 10

Average annual maintenance cost = $20,000

To be bought in August

Fair Market Value at end of lease = $100,000

Fair Market Value at end of life = $ 50,000

Security Deposit = $20,000 returnable

Lease Payment = $5000

8.5 % interest rate

60 month loan term

10% down payment

Security deposit = $20,000, refundable

60 month lease term

Option to buy price at end of lease = Yes at $100,000

Other lease fees = $100

Responsible for maintenance of leased equipment

$5000 monthly lease fee

34% federal tax rate

5.5% State tax rate

1% savings interest rate

Submit answer as A for Buy or B for Lease depending on the cheaper cost

Question 2.) Reconsider the factors involved in Problem 1 assuming purchased equipment will involve more maintenance than leased equipment over the lease period, resulting in an additional $200,000 of lost production and maintenance costs during that period. Given this, submit your A Buy or B Lease decision.

Question 3.) There are many methods for calculating depreciation, such as the straight line method, the Sum of the Years Method, and the Declining Balance Method. Each of these methods have different purposes.

Calculate the annual depreciation amount for the $500,000 crane discussed in Problem 1 using the straight line method. Assume a 10 year ownership life. Assume a $50,000 salvage value at the end of ten years.

Annual Depreciation Rate = 1/ number of years of ownership

Annual Depreciation Amount = Annual Depreciation Rate(Price-Salvage Value) Choose your answer to submit from:

A $50,000

B $4000

C $45,000

D $50,000 plus Federal tax amount