Question

1.Your firm needs to invest in a new truck. The life expectancy of the truck is four years. You can purchase a new truck for an upfront cost of $250,000, or you can lease a truck from the manufacturer for four years for a monthly lease payment of $4500 (paid at the end of each month). Your firm can borrow at 8% APR with quarterly compounding.

The present value of the lease payments for the truck is closest to:

A.$216,000

B.$184,612

C.$198,420

D.$207,680

Answer 1

Quarterly rate = 8%/4 =2%
Monthly effcetive rate
2% =(1+r)^3-1
r =0.662271%
Present Value Of An Annuity
= C*[1-(1+i)^-n]/i]
Where,
C= Cash Flow per period
i = interest rate per period
n=number of period
= $4500[ 1-(1+0.00662272)^-48 /0.00662272]
= $4500[ 1-(1.00662272)^-48 /0.00662272]
= $4500[ (0.2716) ] /0.00662272
=$184612
CORRECT Answer =B.$184,612