Your landscaping company can lease a truck for $7,200 a year for 6 years. It can...

Your landscaping company can lease a truck for $7,200 a year for 6 years. It can instead buy the truck for $35,000. The truck will be valueless after 6 years. a. What is the present value of the lease payments, if the opportunity cost of capital is 7%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Present value $ b. Is it cheaper to buy or lease? Lease Buy

Expert Solution

Solution :

a. The present value of lease payments = $ 34,319.09 ( when rounded off to two decimal places )

b. It is cheaper to lease the truck as the present value of lease payments at $ 34,319.09 is lower than the cash outflow of $ 35,000 required for the purchase of the truck .

Thus the truck should be leased.

Please find the attached screenshot of the excel sheet containing the detailed calculation for the present value of lease payments.

jeff jeffy answered 6 months ago

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