A firm is considering renting a trailer at $300/mo. The unit is needed for 5 yr. The leasing company offers a lump sum payment of $24,000 at the end of 5 yr as an alternative payment plan, but is willing to discount this figure. The firm places a value of 10% (effective annual rate) on invested capital. How large should the discount be in order to be acceptable as an equivalent?

Intermediate Financial Management (MindTap Course List)
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ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
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Chapter12: Capital Budgeting: Decision Criteria
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A firm is considering renting a trailer at $300/mo. The unit is needed for 5 yr. The leasing company
offers a lump sum payment of $24,000 at the end of 5 yr as an alternative payment plan, but is willing
to discount this figure. The firm places a value of 10% (effective annual rate) on invested capital. How
large should the discount be in order to be acceptable as an equivalent?
Transcribed Image Text:A firm is considering renting a trailer at $300/mo. The unit is needed for 5 yr. The leasing company offers a lump sum payment of $24,000 at the end of 5 yr as an alternative payment plan, but is willing to discount this figure. The firm places a value of 10% (effective annual rate) on invested capital. How large should the discount be in order to be acceptable as an equivalent?
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