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
Answer: D
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Fill in the blank(s) with the appropriate word(s).