In the Net Advantage to Leasing Calculation, All Cash Flows

question 22

Multiple Choice

In the net advantage to leasing calculation, all cash flows (except salvage value) are discounted at the firm's ____.

• A) weighted (marginal) cost of capital
• B) cost of internal equity capital
• C) pretax marginal cost of borrowing
• D) after-tax marginal cost of borrowing

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Definitions:

Useful Life

The estimated duration an asset is expected to be functional and valuable for, used for depreciation calculations.

Salvage Value

The predicted resale value of an asset at the close of its effective life.

Straight-line Method

A depreciation calculation technique that evenly spreads the loss in value of an asset across each year of its expected useful lifespan.

Double-declining-balance Method

A depreciation approach that speeds up the process by using a rate twice that of the typical straight-line method.