A Lease-Versus-Purchase Analysis Should Compare the Cost of Leasing to the Cost

question 10

Multiple Choice

A lease-versus-purchase analysis should compare the cost of leasing to the cost of owning,assuming that the asset purchased

• A) is financed with short-term debt.
• B) is financed with long-term debt.
• C) is financed with debt whose maturity matches the term of the lease.
• D) is financed with a mix of debt and equity based on the firm's target capital structure,i.e. ,at the WACC.
• E) is financed with retained earnings.

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Definitions:

Expenses

Outflows or other using up of assets or incurrence of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major operations.

Quasilinear Preferences

A type of preference where utility is linear in one argument, allowing indifference curves to have the same slope regardless of the level of consumption of other goods.

Equivalent Variation

A measure used in economics to evaluate the change in wealth that would leave an individual's utility unchanged before and after a policy change or a price change.

Compensating Variation

A monetary measure of the amount of money a consumer would need to reach their original utility level after a price change.