# The ABc Corporation is evaualting a potential lease agreement on a truck that costs 40,000 and falls?

into the Marcs 5 year class. The loan rate on the truck would be 10% if ABC decided to borrow and buy rather that lease and the loan would require 5 equal payments due at the end of the year. The truck has a 5 year economic life an an estimated residual value of \$10,000 If ABC buys the truck it would purchase a maintenance contract which costs 1000 per year payable at year end The terms lease which include maintenance call for a 10,000 lease pymt at the begininng of each year should they lease por purchase show your work

Relevance
• Anonymous

Truck costs \$40,000

Loan = \$40,000

Interest = 10% X 5 X \$40,000 = \$20,000

Total repayment = \$60,000

Annual repayment = \$60,000 / 5 = \$12,000

Residual Value = \$10,000

Maintenance = \$1,000

Total outgoing annual payment = \$13,000 at end of year

Present value = 13,000/1.1 + 13,000/(1.1)^2 + 13,000/(1.1)^3 + 13,000/(1.1)^4 + (13,000 - 10,000)/(1.1)^5 = \$43,071

Lease:

Present Value = 10,000 + 10,000/1.1 + 10,000/(1.1)^2 + 10,000/(1.1)^3 + 10,000/(1.1)^4 = \$41,699