The WACC Is Not Used in the Lease Versus Purchase

question 31

Multiple Choice

The WACC is not used in the lease versus purchase decision because:

• A)the WACC was used in the decision to acquire the asset, this is only a financing decision.
• B)the WACC is used only when a lease alone is considered and not a lease versus purchase.
• C)the WACC does not include the lease cost of capital and therefore should not be used.
• D)tax rates of the lessor may be different than the lessee and therefore the WACC is incorrect.
• E)when a bank arranges a lease they do not consider the lessee's cost of capital.

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Definitions:

Task Variety

The degree to which a job involves a range of different activities requiring different skills.

Separate Workers

The process or policy of keeping workers apart from each other, possibly based on roles, tasks, or certain conditions.

Abdication

The act of formally relinquishing responsibility or authority over something.

Managerial Authority

The power vested in managers and executives to make decisions, direct teams, and oversee the operations within an organization.