In the Lease Versus Buy Decision, Leasing Is Often Preferable

question 11

Multiple Choice

In the lease versus buy decision, leasing is often preferable

• A) because it has no effect on the firm's ability to borrow to make other investments.
• B) because, generally, no down payment is required, and there are no indirect interest costs.
• C) because lease obligations do not affect the firm's risk as seen by investors.
• D) because the lessee owns the property at the end of the least term.
• E) because the lessee may have greater flexibility in abandoning the project in which the leased property is used than if the lessee bought and owned the asset.

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Definitions:

Doctrine Of Frustration

A legal principle that allows a contract to be discharged when an unforeseen event makes contractual obligations impossible to perform, or fundamentally changes the party’s principal purpose for entering into the contract.

Common Law

A legal system characterized by judicial decisions creating precedent, originating in England and forming the basis of legal systems in many English-speaking countries.

Clause

A specific provision or section within a contract or legal document that stipulates particular terms, conditions, or obligations.

Frustrated Contract

A legal concept describing a contract that, due to unforeseeable circumstances, has become impossible to perform, thus being voided without penalty to either party.