In this part of project you will evaluate the opportunity to obtain a tractor. Y

Question

In this part of project you will evaluate the opportunity to obtain a tractor. You will perform the calculations to determine whether or not it is more advantageous to purchase or lease this asset. You will use the Project Template (this is a Microsoft Excel template) to complete this part of your project.

Thoroughly read the instructions.

Complete the worksheet for this asset.

Complete ONLY the shaded text boxes.

You will need to create the Excel formulas needed to perform the calculations.

Decision #1-Tractor WFFM wants to obtain a new tractor, and has found a good option at Tractor Supply. Company X can either buy the tractor for $30,000, or it can lease it for 4 years with an annual payment of $6000. A payment is due at the inception of the lease, then at the end of each year, for a total of 5 payments. The effective rate in the market for an equipment loan is 6% The Company feels that this tractor will have a useful life of 7 years Data Cost Annual Lease payment Interest rate Term in Years Economic Life (Years) Present Value of payments PV of Lease Year (Time) Purchase pmts 0 1 2 4

Explanation / Answer

Data

Present Value of Payments (Amount in $)

As the PV of lease payments are less than Purchase, the company should lease the Tractor.

Lease Type Criteria

Lease Amortization Table (Amount in $)

Cost $30,000 Annual Lease payment $6,000 Interest Rate 6% Term in years 4 years Economic life (years) 7 years

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