You are the Chief Pilot for Aurora Medical Supplies, a Fortune 100 company. Aurora operates (owns) two Citation Bravo's, primarily for in house executive travel, but also for potential customers.

 
Don Richardson, CEO Aurora Medical Supplies, informed you that due to increases in sales, corporate travel forecasts for the next 10 years are expected to grow rapidly. He has asked you to acquire another Citation Bravo. Your assignment is to determine whether it will be better (financially) to purchase or lease (dry) the aircraft. ** Do not factor any legal implications into this assignment - only financial.**

 
Here are the details of each option:
Purchase:
Available for $5,000,000
You would put $1,000,000 down and finance the rest
The interest rate would be 8% over a 10 year period
Interest compounded monthly
Aurora is responsible for all maintenance costs
Estimated at $200,000 annually
Residual value of aircraft after payoff is $3,500,000

 
Lease:
Available at $45,000/month
Now, you would invest your $1,000,000 (instead of down payment) in Aurora's bank
The bank pays Aurora 6% on all short term deposits (assume they are comfortable with this type of investment)
Assume the $1,000,000 stays in bank for the entire 10 years
If the lease payment is cheaper than the purchase monthly payment, you will invest that excess amount every month with the $1,000,000
Interest compounded monthly
Lease company assumes some maintenance
Aurora responsible for $120,000 maintenance annually

 
Your task is to now compare each option financially over a ten year period, and make a recommendation to Mr. Richardson. Why did you pick one over the other option.  Include any sources you may have used in your decision making process. Show your work

Answer rating: 100% (QA)

To compare the financial implications of purchasing versus leasing the additional Citation Bravo aircraft for Aurora Medical Supplies over a tenyear period we will calculate the costs and potential re... View the full answer