Why Is the Salvage Value of an Asset Not Included

question 80

Multiple Choice

Why is the salvage value of an asset not included in the calculation of the present value of a lease?

• A) A leased asset always has salvage value of $0
• B) It is the same whether the asset is leased or purchased
• C) The salvage value would not be considered a cash flow
• D) The salvage value has to be estimated, and only cash flows whose values are known with certainty are included

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Definitions:

Production

The process of transforming raw materials or components into finished goods ready for sale, using labor, machinery, tools, and other resources.

Operations

The day-to-day activities necessary for an organization to run effectively, encompassing production, distribution, and fulfillment of products or services.

Equivalent Units

A measure used in cost accounting to express the amount of materials or labor consumed in terms of fully completed units.

Cost Per Unit

The total expense incurred to produce, store, and sell one unit of a product, considering all direct and indirect costs.