Below is the data for the company International
Allied Distributors, LLC. In an Excel sheet you must evaluate both
alternatives and decide based on their results what suits the
company, whether to lease or buy.
To obtain a partial score you must present all your calculations in the
document in Excel.
Problem:
* International Allied Distributors, LLC is evaluating whether to purchase
your new fleet of trucks or whether to lease it to a dealer
identified as offering both alternatives, buy or lease.
* The alternative of leasing the truck fleet requires an annual payment
$2,250,000 per year for the next 5 years.
* Buying the truck fleet requires an investment of $8,500,000. The
The company will obtain the funds through a commercial loan at 6% of
annual compound interest. Buying the truck fleet requires a cost
total annual maintenance of $500,000 per year.
* The company's tax rate is 40% and its average cost of capital
weighted (WACC) is 7%. You will use the straight-line depreciation method
for the 5 years of useful life of the truck fleet.
* Determine if International Allied Distributors, LLC should purchase or
lease the fleet of trucks.