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 $200,000, or you can lease a truck from the manufacturer for five years for a monthly lease payment of $4,000 (paid at the end of each month). Your firm can borrow at 6% APR with quarterly compounding.
-The monthly discount rate that you should use to evaluate the truck lease is closest to:
A) 0.487%
B) 0.512%
C) 0.498%
D) 0.500%

Question

Quizplus · Accepted Answer

C) EAR = (1 + APR / k)^k - 1 = (1 + .06 / 4)⁴ - 1 = .06136 or 6.14% Monthly rate = (1 + EAR)^(1/12) - 1= (1.06136)^(1/12) - 1 = .004975 = 0.498%

Use the Information for the Question(s) Below