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

Multiple Choice

Carolina Trucking Company (CTC) is evaluating a potential lease for a truck with a 4-year life that costs $40,000 and falls into the MACRS 3-year class.If the firm borrows and buys the truck,the loan rate would be 9%,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 time it will be sold at an estimated residual value of $12,000.If CTC buys the truck,it would purchase a maintenance contract that costs $1,500 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.)

A) $609
B) $642
C) $678
D) $715
E) $751