Reference no: EM131911097

Your S Corporation needs a new truck for its operations and is looking at three alternatives. The first alternative is to lease the truck for 60 months. The monthly lease payment is $525 per month with the first payment due in April. At the end of the lease, the truck will be returned to the dealer. The lease is considered an operating lease and excludes all maintenance and operational cost. The second alternative is to purchase the truck with a 60-month loan at an interest rate of 9% (APY 9.38). The loan has $250 in origination fees. The trucks entire sales price of $25,000- including the loan origination fees- can be financed. The first payment is due in April. The third alternative is to purchase the truck with cash for $25,000 in April. If your company purchases the truck, the estimated salavage value of the truck at the end of 5 years is $5000. Gains and losses on the sale of the truck will be treated as ordinary income. The truck may be depreciated using the half-year convention. For all three alternatives, the truck is to be placed in service in April. Your companys tax year is the same as the calendar year and its marginal tax rate 34%. Using the net present value (cost) method, which of the above alternatives is the best for your company if your MARR is 1% per month? Assume that there is sufficient taxable income to use all tax savings in the year they occur.