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In: Finance
Welbilt is negotiating to lease small trailers with Delta Leasing. The firm has received an offer...
Welbilt is negotiating to lease small trailers with Delta Leasing. The firm has received an offer from Wells Cargo for a total purchase price of $1,100,000. The terms of the lease include four payments of $290,000, with each payment occurring at the beginning of the year. An alternative to leasing is to borrow the money and buy the trailers. The $1,100,000 loan for four years has an annual interest rate of 8%. Assume the trucks fall into the MACRS 3-year class and have an expected residual value of $150,000. The applicable depreciation rates are .3333, .4445, .1481 and .0741. Maintenance costs would be included in the lease. If the trailers are purchased, a maintenance contract would be bought at the beginning of each year for $16,000 annually. Welbilt plans to buy a new set of trailers at the end of the fourth year. The firm has an effective tax rate of 21%.
1. What is Welbilt’s present value of the cost of owning?
2. What is Welbilt’s present value of the cost of leasing?
3. What is Welbilt’s Net Advantage to Leasing (NAL)?
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jeff jeffy answered 1 year agoRelated Solutions
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