The Bentley Azure can be leased for four years for 0 down and 48 monthly payments of 4,000 (due at the beginning of each month). Today is the day that the first payment is due.
If, instead, you save the payments in a bank account at the nominal annual rate of 7.5, then how much money will you have at the end of the fourth year? (Round answer to the nearest whole dollar)
A) 224,498
B) 223,103
C) 221,984
D) 222,768
E) 223,326
Question 2
A wildcat oil driller has enough capital to invest in only one project, that is, to drill one well in an
East Texas oil field. A major oil company is drilling 100 wells in the same field.
The probability of
successfully striking oil is 10 for any well drilled in this field. Which of the following statements
is MOST correct concerning the risk involved in these capital budgeting projects?
A) The risk for the wildcat driller is the same as the risk for the major oil company since they are
both drilling in the same oil field.
B) The best measure of risk for the wildcat oil driller is project standing alone risk.
C) The appropriate risk for the wildcat driller is systematic risk.
D) The appropriate risk for the major oil company is contribution-to-firm risk, if all
shareholders of the firm are well diversified.
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