Evaluate the opportunity to obtain a truck and perform the c

Evaluate the opportunity to obtain a truck and perform the calculations to determine whether or not it is more advantageous to purchase or lease this asset. Use the Excel Project Template to complete this part of your project.Thoroughly read the instructions. Complete the worksheet for this asset. Complete ONLY the shaded text boxes. Create the Excel formulas needed to perform the calculations

Decision #2-Truck WFFM believes that it will need a new Deisel truck and a trailer with which to move the tractor from one farm to another. The company has identified a new Ford F 350 truck at the dealership for $65,000. The dealer is offering an a New vehicle loan incentive rate of 0% for a 60 month purchase. For the purposes of this calculation, compute tha annual payment amount at the END of the each year. Alternatively, the dealer is willing to lease this vehicle for $13,000/yr for 5 years, with an initial down payment of $3,500, plus the full first year\'s lease payment up front. The market rate for leases is 1.99% The company feels that it would receive the benefits of this truck for 10 years or more.

Solution

Data

cost

65,000

Annual lease payment

13,000

Down payment

3,500

Interest rate

1.99%

Terms in years

5

Economic life(in years)

10

Present value of payments:

Year

Purchase

PV of payments at 1.99%

0

     16,500.00

1

           13,000

     12,746.35

2

           13,000

     12,497.64

3

           13,000

     12,253.79

4

           13,000

     12,014.70

5

Total

     66,012.49

It better to buy, because cost by purchase is less than leasing the truck.
Lease type criteria:
Ownership does not transfer at the end of the period.
Purchase option? Yes
Lease term 75% or more than the ECONOMIC LIFE? No
PV of payments > 90% of fair value? Yes
This is classified as operating lease, because lease term is less than 75% of the economic life of the asset.

Lease amortization table:

Payment date

cash payment

interest expense

Decrease in balance

Balance

PV of payments

   66,012.49

First payment

           16,500

     16,500.00

   49,512.49

Dec 31, year1

           13,000

           985.30

     12,014.70

   37,497.79

Dec 31, year2

           13,000

           746.21

     12,253.79

   25,243.99

Dec 31, year3

           13,000

           502.36

     12,497.64

   12,746.35

Dec 31, year4

           13,000

           253.65

     12,746.35

                   0

Totals

           68,500

       2,487.51

     66,012.49

cost	65,000
Annual lease payment	13,000
Down payment	3,500
Interest rate	1.99%
Terms in years	5
Economic life(in years)	10