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 ________.

Question

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B) First we need to calculate the monthly discount rate for the lease arrangement. 11ea84dc_f574_b7d8_9a63_39679cd7fd86_TB1316_00_TB1316_00 11ea84dc_f574_b7d9_9a63_ef537fad2c95_TB1316_00_TB1316_00 Now we can apply the PVA formula to calculate the PV of the lease or by calculator:
I = 0.6458
N = 60 (5 years × 12 months/yr)
FV = 0
PMT = $4800
Compute PV = $238,132.

Your Firm Needs to Invest in a New Delivery Truck