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 is best for the company, whether to lease or buy:
• International Allied Distributors, LLC is evaluating whether to purchase its new fleet of trucks or lease it from an identified dealer that offers both purchase and lease alternatives.
• The alternative of leasing the truck fleet requires an annual payment of $2,250,000 per year for the next 5 years.
Buying the truck fleet requires an investment of $8,500,000. The company will obtain the funds through a commercial loan at 6% compound annual interest. Purchasing the truck fleet requires a total annual maintenance cost of $500,000 per year.
• The company's tax rate is 40% and its weighted average cost of capital (WACC) is 7%. It will use the linear depreciation method for the 5 years of useful life of the truck fleet.
Determine whether International Allied Distributors, LLC should purchase or lease the truck fleet.