If a Lessor Paid $800,000 for an Asset, How Would

question 91

Multiple Choice

If a lessor paid $800,000 for an asset, how would the lessee treat this amount in his financial lease analysis?

• A)lessor would ignore it, since it is a lessor cost.
• B)lessor would treat it as a cash inflow, since he avoids it by leasing.
• C)lessor would amortize it over the lease life as an expense.
• D)lessor would discount it by his cost of capital.

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Definitions:

Cash Inflows

Money or funds coming into a business or project, often as revenue, financing, or investment.

Cash Outflows

Money going out of a business, including expenses, investments, and distributions to shareholders.

NPV

Net Present Value; a method used in capital budgeting to evaluate the profitability of an investment or project by calculating the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Replacement Chain

A decision analysis tool used to choose between mutually exclusive projects with differing durations by comparing the equivalent annual annuity.