A Lease Versus Purchase Analysis Should Compare the Cost of Leasing

question 17

Multiple Choice

A lease versus purchase analysis should compare the cost of leasing to the cost of owning, assuming that the asset purchased

• A) is financed with long-term debt.
• B) is financed with debt whose maturity matches the term of the lease.
• C) is financed with a mix of debt and equity based on the firm's target capital structure, i.e., at the WACC.
• D) is financed with retained earnings.
• E) is financed with short-term debt.

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Definitions:

Corporate Affairs

Activities related to the operation and management of a corporation, including its legal, financial, and communications strategies.

Prudent Business Judgment

Decision-making by business leaders that is cautious, reasonable, and in the best interest of the organization, based on available information.

Business Judgment

The decision-making process undertaken by company directors or officers that is characterized by a reasonable level of discernment and is in the interest of the company.

Breach

A violation or infringement of a legal obligation, contract, or law.