Which of the Following Statements Is FALSE

question 15

Multiple Choice

Which of the following statements is FALSE?

• A)Because we are getting the entire asset when we purchase it with the loan,the loan payments are higher than the lease payments.
• B)In a perfect market,the cost of leasing and then purchasing the asset is equivalent to the cost of borrowing to purchase the asset.
• C)With a lease we are financing the entire cost of the asset,with a standard loan we are financing only the cost of the economic depreciation of the asset during its life.
• D)The amount of the lease payment will depend on the purchase price,the residual value,and the appropriate discount rate for the cash flows.

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Definitions:

Capital Budgeting

The process of planning and evaluating investments in long-term assets, analyzing their expected cash flows and their impact on the company's financial future.

Bonds

Financial instruments representing a loan made by an investor to a borrower, typically corporate or governmental, where the issuer owes the holders a debt and is obliged to pay them interest and/or repay the principal at a later date, termed the maturity.

Issue Stock

This refers to the process by which a company offers new shares to investors or the public in order to raise capital.

NPV

Net Present Value, a method used in capital budgeting to evaluate the profitability of an investment or project by comparing the present value of cash inflows to the initial investment.