If a Lease Analysis Shows Exactly the Same Present Value

question 62

Multiple Choice

If a lease analysis shows exactly the same present value as an equivalent loan, the lessee should:

• A)Choose to lease or buy based on other criteria
• B)Lease, since there are more tax shelters
• C)Buy, because the salvage might be bigger than estimated
• D)Neither lease nor buy, since the asset choice is clearly wrong

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Definitions:

Substitution Effect

The economic principle that as prices rise, consumers will replace more expensive items with less costly alternatives.

Income Effect

The change in consumption resulting from a change in real income.

Theory of Consumer Choice

An economic framework describing how consumers make decisions to allocate their resources optimally among various goods and services.

Indifference Curve

A graph representing combinations of goods among which a consumer is indifferent, showing trade-offs between two goods.