Alden Trucking Company Is Replacing Part of Its Fleet of Trucks

question 87

Multiple Choice

Alden Trucking Company is replacing part of its fleet of trucks by purchasing them under a note agreement with Kenworthy on January 1, 2016. Alden financed $37,908,000, and the note agreement will require $10 million in annual payments starting on December 31, 2016 and continuing for a total of four more years (final payment December 31, 2020) . Kenworthy will charge Alden Trucking Company the market interest rate of 10% compounded annually. What is the amount of the 2017 interest expense?

• A)$3,169,880.
• B)$3,290,800.
• C)$4,000,000.
• D)$2,790,800.

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Definitions:

Break-even Analysis

A calculation that determines when an investment will reach a financial break-even point.

Margin of Safety

The difference between actual or projected sales and the break-even point, indicating the level of risk in missing sales projections.

Break-even Sales

The amount of revenue needed to cover total costs, both fixed and variable, indicating the point at which a company neither makes a profit nor incurs a loss.

Margin of Safety

The difference between actual or projected sales and the sales level necessary to break even, as a buffer against uncertainty.