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You own a cab company and are evaluating two options to replace your fleet.
You own a cab company and are evaluating two options to replace your fleet. Either you can take out a five-year lease on the replacement cabs for $ 532per month per cab, or you can purchase the cabs outright for $29,900, in which case the cabs will last eight years. You must return the cabs to the leasing company at the end of the lease. The leasing company is responsible for all maintenance costs, but if you purchase the cabs, you will buy a maintenance contract that will cost $105 per month for the life of each cab. Each cab will generate revenues of $1,057 per month. Assume the cost of capital is fixed at 12.9%.
