If a Financial Lease Analysis Uses a Higher Discount Rate

question 11

Multiple Choice

If a financial lease analysis uses a higher discount rate than a lessee would ordinarily use on conventional secured loan, which one of the following reasons would best explain that dichotomy?

• A)the lessor charges a higher interest rate on the lease than normally.
• B)the asset is unreliable, so requires a higher discount rate.
• C)the lessee may be unsure that he can earn enough taxable income to use the tax shields in the lease analysis.
• D)the discount rate is uncertain, so a higher one is used.