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Your project will require use of a high pressure punch press for four months. You can rent the press for $10,000 payable at the end of each month. You may also choose to make a lump sum payment on the day the press is delivered. Using a discount rate of 1% per month, the maximum lump sum payment you should choose to make is:
Correct Answer: C
Present value [PV=FV/(1+i)n] of at the beginning of the first month for all $10,000 paid at the end of months for four months, will be $39,019.66 which is just greater than $39,000 (or C) the maximum lump sum amount payable. Reference: Project Management: A Systems Approach to Planning, Scheduling and controlling, 6th Edition p.762