Question

Paul’s Delivery Service is considering selling one of its smaller trucks that is no longer needed in the business. The truck originally cost $23,000 and has accumulated depreciation of $10,000. The truck can be sold for $14,000. Another company is interested in leasing the truck. It will pay $4,800 per year for three years. Paul’s Delivery Service will continue to pay the taxes and license fees for the truck, but all other expenses will be paid by the lessee. Management assumes the expenses for the taxes and license will be $300 per year.

1. Prepare a differential analysis report for the lease or sell decision.

2. On the basis of the data presented, would it be advisable to lease or sell the truck.

Answer 1

ORIGINAL COST OF OLD TRUCK	23000
ACCUMALTED DEPRECIATION	10000
SELLING PRICE OF TRUCK	14000
LEASE RENT	4800 PER YEAR FOR 3 YEARS
TAXES AND LICENSE FEES	300
Dear Student let us assume dicounting factor as 10%
OPTION 1: SOLD TRUCK NOW :
SELLING PRICE	14000
OPTION 2: LEASE TRUCK:
LEASE RENT PER ANNUM	4800
PERIOD	3
TOTAL LEASE AMOUNT	14400
PRESENT VALU ANNUITY FACTOR	2.486
PRESENT VALUE OF LEASE RENT	11932.8
ANALYSIS:
IF YOU ARE CONSIDER DISCOUNTING FACTOR IT IS BETTER TO SALE THE TRUCK NOW IT SELF.
BUT IF YOU ARE NOT CONSIDEREING DICOUNTING FACTOR AT ALL IT IS BETTER TO GIVE LEASE OF TRUCK
BUT CONSIDERING DISCOUNTING FACTOR IS BETTER FOR ANY FINANCIAL RELATED DECISIONS. SO BETTER TO GO FOR SALE OF TRUCK NOW IT SELF.