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A building contractor can purchase a truck from her local Toyota dealer for GH¢100,000. The Toyota dealer can also lease the truck for GH¢24,400 per year over five years. The truck has an expected life of five years. The truck is expected to be worth GH¢10,000 in five years and the contractor intends to buy it at fair market value at that time. If the contractor wants to purchase the truck, she must borrow the money from IBK Bank at a current rate of 20%. The contractor’s tax rate is 30% for simplicity, assume straight-line depreciation and the entire lease rentals are tax deductible. The contractor will incur GH¢5,000 in maintaining and insuring the truck. Would leasing be a better option?

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Financial Management, Finance

Category:- Financial Management
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