The Cost of a 10 Year Lease Adds $200,000 Per

question 2

Multiple Choice

The cost of a 10 year lease adds $200,000 per year in after tax cash flows, compared to using a loan to purchase the asset. Ceteris paribus, and given a usable life of 10 years with no salvage value, what is the advantage of a lease given a discount rate of 7%?

• A) $200,000
• B) $1,400,000
• C) $1,800,000
• D) $2,000,000

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Definitions:

Real Interest Rate

The real interest rate adjusts the nominal interest rate to remove the effects of inflation, reflecting the true cost of borrowing or the real yield on savings.

Future Consumption

Refers to the use or purchase of goods and services at a future date, an important concept in economics related to saving and investment decisions.

Current Consumption

The total value of all goods and services consumed by households and individuals in the present time period.

Present Value

Today's value of future money or cash flow sequences, calculated using a certain rate of return.