The Cost of a Seven-Year Lease Is $150,000 Per Year

question 5

Multiple Choice

The cost of a seven-year lease is $150,000 per year and matches the exact cost of a loan to finance the purchase of equipment. All else equal, and given a usable life of seven years with no salvage value, what is the advantage of a lease given a discount rate of 7 percent and no taxes?

• A)$0
• B)$800,000
• C)$1,500,000
• D)$2,000,000

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Definitions:

Product Failure Rate

The frequency at which a product fails within a specified period, often used as an indicator of product reliability.

Full Cost View

An accounting approach that considers all direct and indirect costs involved in producing a product or service.

Breakdown Maintenance

Remedial maintenance that occurs when equipment fails and must be repaired on an emergency or priority basis.

Traditional View

A perspective that prioritizes established practices and views, often resistant to change and innovation in various contexts.