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melisa1 [442]
3 years ago
15

Dakota Trucking Company (DTC) is evaluating a potential lease for a truck with a 4-year life that costs $40,000 and falls into t

he MACRS 3-year class. If the firm borrows and buys the truck, the loan rate would be 10%. The cost of capital (WACC) for this company is also 10%. The truck will be used for 4 years, at the end of which time it will be sold at an estimated residual value of $10,000. The lease terms call for a $10,000 lease payment (4 payments total) at the beginning of each year. DTC's tax rate is 30%. Should the firm lease or buy? (Note: MACRS rates for Years 1 to 4 are 0.33, 0.45, 0.15, and 0.07.)

Business
1 answer:
Afina-wow [57]3 years ago
7 0

Answer:

The company should borrow or buy the truck as it is less costly than leasing.

Explanation:

Detailed solution is given below

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