In Valuing the Lease Versus Purchase Option,the Relevant Cash Flows

question 38

Multiple Choice

In valuing the lease versus purchase option,the relevant cash flows are the:

• A) tax shield from depreciation.
• B) investment outlay for the equipment.
• C) a decrease in the firm's operating costs that are not affected by leasing.
• D) All of these are relevant.
• E) None of these. are relevant.

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Definitions:

Direct Labor

Direct labor refers to the work done by employees that is directly involved in the production of goods or the provision of services.

Variance

A measure of the dispersion or spread of a set of data points around their mean value.

Direct Materials Quantity Variance

The difference between the actual quantity of direct materials used in production and the standard quantity expected to be used.

Standard Labor Hours

The predetermined amount of time expected to be required to complete a task or produce a unit of goods under normal conditions.