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:

Inventory

The total amount of goods and materials held by a company awaiting sale or use in production.

Accounts Receivable

Funds that customers owe a business for products or services already delivered or utilized but not yet paid for.

Raw Materials

Fundamental substances or components used in the initial stages of the manufacturing process to produce goods.

Cash Disbursements

The payment of cash by a business for expenses, purchases, or obligations.