Use the Information for the Question(s)below

question 80

Multiple Choice

Use the information for the question(s) below.
Your firm needs to invest in a new delivery truck. The life expectancy of the delivery truck is five years. You can purchase a new delivery truck for an upfront cost of $250 000, or you can lease a truck from the manufacturer for five years for a monthly lease payment of $5 000 (paid at the end of each month) . Your firm can borrow at 5% APR with quarterly compounding.
-The monthly discount rate that you should use to evaluate the truck lease is closest to:

• A)0.487%
• B)0.4124%
• C)0.4175%
• D)0.4149%

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Definitions:

September

The ninth month of the year in the Gregorian calendar.

Positive Net Present Value

An indicator that an investment is expected to generate more cash than the initial amount invested, viewed positively in capital budgeting.

Regular Dividend

A fixed amount paid by a company to its shareholders out of its profits (or reserves) on a regular schedule.

Dividend Policy

A company's approach to distributing profits back to its shareholders in the form of dividends.