When Calculating Net Present Value Earlier in the Text, the Appropriate

question 128

Essay

When calculating net present value earlier in the text, the appropriate cost of capital for a project
was determined by the use of the funds, not the source. However, in leasing, we calculate the net
advantage to leasing by discounting the cash flows at the lessee's after-tax borrowing rate. Aren't
we violating our basic NPV principles here? Explain.

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