What Is the Main Reason for Using a Higher Discount

question 66

Multiple Choice

What is the main reason for using a higher discount rate for the salvage value of an asset than for other cash flows?

• A) The other variables are more easily controlled by the lessee, so therefore they should be discounted at a lower rate than the salvage value
• B) The other variables are more uncertain than the salvage value and hence, they should be discounted at a lower rate
• C) The salvage value is more uncertain than the other variables in the analysis
• D) The salvage value increases the cost of purchasing the asset, and therefore, a higher discount rate should be used to offset this higher cost

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