If the Tax Rates of the Lessor and Lessee Are

question 40

Multiple Choice

If the tax rates of the lessor and lessee are the same, then the financial lease analysis that shows a $500 positive NPV will suggest that:

• A)The lessor is $500 better off than the lessee
• B)The user should lease, not buy
• C)The lessor should lower his lease terms
• D)The user should buy, not lease

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Definitions:

Payback

The amount of time it takes for an investment to generate an amount of income or cash flow to recover its initial cost.

Annual Cash Flows

The total amount of money being transferred in and out of a business, measured yearly.

Required Rate

The minimum return that investors demand for investing in a particular asset, reflecting the risk of the investment.

Discounted Payback Period

A capital budgeting method that calculates the amount of time needed to break even from an investment in present value terms, factoring in the time value of money.