Which One of the Following Is the Least Worthy Reason

question 164

Multiple Choice

Which one of the following is the least worthy reason for leasing rather than purchasing an asset?

• A) reduction in uncertainty
• B) less encumbered assets than secured borrowing
• C) lower taxes
• D) less restrictive covenants than secured borrowing
• E) to improve the appearance of the financial statements

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Definitions:

Discount Rate

The interest rate used to discount future cash flows to their present value, reflecting the time value of money and risk.

Profitability Index (PI)

The profitability index is a calculation used to assess the relative profitability of an investment, based on its present value of future cash flows per unit of investment.

Profitability Index (PI)

A calculation that relates the benefits of an investment project to its costs, often used to compare the attractiveness of different projects.

Discount Rate

The rate at which an individual discounts future cash flows to determine their present value, essential in capital budgeting to assess the profitability of investments.