PepsiCo is planning to acquire a fleet of trucks to support its new Pepsi Express distribution system in the Omaha area. The installed cost of the trucks is $777,000. The salvage value at the end of five years is expected to be $75,000 after-tax. The present value of the expected salvage is $42,600, after discounting at PepsiCo's cost of capital. The present value (using PepsiCo's after-tax cost of debt as the discount rate) of the depreciation tax shield from this project is $210,000. The present value of the after-tax lease payments (also using PepsiCo's after tax cost of debt as the discount rate) is $575,000. PepsiCo will incur (in present value terms) operating costs of $140,000 more, after-tax, if the trucks are owned than if they are leased.
What is the net advantage of leasing in this case? What should PepsiCo do?