A leading supplier of grapes to the wine- producing

QUESTION

A leading supplier of grapes to the wine- producing industry
in California, On the Vine Grapes, wants to expand its delivery services and
expand its reach to market by increasing its current fleet of delivery trucks.
Some of the older vehicles were acquired through closed-end leases with
required down payments, mileage restrictions, and hefty early termination
penalties. Other vehicles were purchased using traditional purchase-to-own
loans, which often resulted in high depreciation costs and large maintenance
fees. All vehicles were acquired one at a time through local dealers.
On the Vine Grapes has asked you to assist in developing a
lease/ buy cost analysis worksheet in order to make the most cost-effective
decision. Currently the director of operations, Bill Smith, has identified a
2005 Ford F-550 4×2 SD Super Cab 161.8 in. WB DRW HD XLT as the truck of choice
for the business. This vehicle has a retail price of $ 34,997.00 or a lease
price of $ 600/ month through Ford Motor Credit Company.
Here are some basic fees and costs that you need to factor
in:
Lease Costs
Refundable security deposit $ 500
First month’s payment at inception $ 500
Other initial costs $ 125
Monthly lease payment for remaining term $ 600
Last month payment in advance No
Allowable annual mileage 15,000
Estimated annual miles to be driven 20,000
Per mile charge for excess miles 0.10
Purchase Costs
Retail price including sales taxes, title $ 34,997
Down payment $ 4,000
Loan interest rate 8.75%
Will interest be deductible business or home equity
interest? Yes
Is the gross loaded weight of the vehicle over 6,000 lbs?
Yes
Common Costs and Assumptions
Total lease/ loan term 36
Discount percent 8.75
Tax bracket- combined federal and state 33%
Business use percentage 100%
Some particulars you should know
Buyorlease.xls Spreadsheet ( Excel file).
In the file BUYORLEASE.xls is a template you can use to
enter the information. There is also a sheet that has been developed to assist
you with the annual depreciation for an automobile.
Create a detailed summary sheet of the lease/ buy option for
On the Vine Grapes.

ANSWER:

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