Frozen Foods Delivery Is Considering the Purchase of a Delivery

question 52

Multiple Choice

Frozen Foods Delivery is considering the purchase of a delivery truck costing $49,000.The truck can be leased for 3 years at $19,500 per year or it can be purchased at an interest rate of 7.5 percent.The estimated life of the truck is 3 years.The corporate tax rate is 34 percent.The company does not expect to owe any taxes for the next several years due to accumulated net operating losses.The firm uses straight-line depreciation.What is the net advantage to leasing?

• A)-$1,710
• B)-$866
• C)$304
• D)$1,006
• E)$1,394

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Definitions:

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