Carolina Trucking Company (CTC)is Evaluating a Potential Lease for a Truck

question 1

Multiple Choice

Carolina Trucking Company (CTC) is evaluating a potential lease for a truck with a 4-year life that costs $41,000 and falls into the MACRS 3-year class.If the firm borrows and buys the truck,the loan rate would be 9.6%,and the loan would be amortized over the truck's 4-year life.The loan payments would be made at the end of each year.The truck will be used for 4 years,at the end of which it will be sold at an estimated residual value of $12,800.If CTC buys the truck,it would purchase a maintenance contract that costs $1,900 per year,payable at the end of each year.The lease terms,which include maintenance,call for a $10,000 lease payment (4 payments total) at the beginning of each year.CTC's tax rate is 35%.What is the net advantage to leasing? (Note: MACRS rates for Years 1 to 4 are 0.33,0.45,0.15,and 0.07. ) Do not round your intermediate calculations.

• A) $2,490
• B) $1,840
• C) $2,707
• D) $2,165
• E) $1,732

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Energizer

Substances or activities that increase energy levels, focus, or alertness, often used to overcome fatigue or enhance performance.

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The process of making a choice or finding a solution among several alternatives, often following careful thought and consideration.

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