You Are the Manager of a Sales Division, and Are

question 20

Multiple Choice

You are the manager of a sales division, and are considering leasing a fleet of cars for your staff.You can buy the cars for $300,000 or you can lease them for 8 years at $60,000 per year with payments due at end of each year.The company has a tax rate of 40.0% and a CCA rate of 10.0% on vehicles.If the company buys the cars and finances the purchase with a loan, they will pay 7.0% in interest.Assume that after the term of the lease is over, the salvage value of the cars will be zero.What is the NPV of the lease, based on accelerated investment incentive for CCA in the first year?

• A)$213,790
• B)-$26,600
• C)-$23,194
• D)-$240,390

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Definitions:

Price Level

Refers to the average of the current prices of goods and services in the economy.

Interest

Payment received for the use of borrowed money, or the money paid for taking out a loan, often expressed as a percentage.

Utility Functions

Models used to quantify the satisfaction or utility a consumer derives from consuming various bundles of goods and services.

Consumption

The process or activity of using goods and services to satisfy wants or needs.