Reference no: EM13893706

The Alkoma Company needs to acquire a new lift truck for transporting its final product to the ware house. One alternative is to purchase the truck for $40000 which will be financed by the bank at an annual interest rate of 8%. The loan must be repaid in four equal installments, payable at the end of each year. If they purchase the truck, Alkoma estimates the maintenance costs at $0.10/km, payable at the end of each year. The truck has an expected salvage value of $10,000 after four years. Alternatively Alkomacould lease the truck under a four-year contract for a lease payment for a lease payment of $11,000 per year, with no charge per kilometer up to 40,000 km/year. Each annual lease payment must be made at the beginning of the year. The truck would be maintained by the lessor. After four years, Alkoma plans to replace the truck irrespective of whether it leases or buys. Based on historical records, they drive the truck about 20,000 km per year. Alkoma has a MARR (minimum attractive rate of return) of 15%. Ignore taxes and depreciation.

a) What is the Present Worth if Alkoma purchases the truck?

b) What is the Present Worth if Alkoma leases the truck?

c) Should the truck be leased or purchased?

d) How many kilometers per year would Alkoma have to use the truck to be indifferent between purchasing and leasing?