If a Financial Lease Analysis Uses a Higher Discount Rate

question 106

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

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