Your Firm Needs to Invest in a New Delivery Truck

question 38

Multiple Choice

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 $240,000, or you can lease a truck from the manufacturer for five years for a monthly lease payment of $4800 (paid at the end of each month) . Your firm can borrow at 7.80% APR with quarterly compounding. The present value (PV) of the lease payments for the delivery truck is closest to ________.

• A) $190,506
• B) $238,132
• C) $285,758
• D) $333,385

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Definitions:

Fabrication Department

A specialized sector within a manufacturing facility focused on constructing components or products by cutting, shaping, assembling, and finishing raw materials.

Equivalent Units

A concept in cost accounting used to express the amount of work done by manufacturers in terms of fully completed units of output.

Conversion Cost

The sum of direct labor and manufacturing overhead costs, representing the expenses necessary to convert raw materials into finished goods.

Materials

Substances or components that are used in the manufacturing or production process to create goods and products.