The Appropriate Discount Rate That a Lessee Should Use to Value

question 32

Multiple Choice

The appropriate discount rate that a lessee should use to value a financial lease is the:

• A)lessee's aftertax weighted average cost of capital.
• B)lessor's aftertax cost of borrowing.
• C)lessee's aftertax cost of secured borrowing.
• D)capitalization rate stated in the lease contract.
• E)current U.S.Treasury T-bill rate.

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Definitions:

Annual Net Cash Flows

The total amount of cash that a company generates or loses over one year, after all expenses and incomes are taken into account.

Depreciated

A reduction in the value of an asset over time, often due to wear and tear or obsolescence, which is accounted for in accounting to spread the cost over its useful life.

Marginal Tax Rate

The marginal tax rate is the rate at which the last dollar of income is taxed, reflecting the rate applied to an individual's or entity's highest level of income.

Marginal Tax Rate

The rate at which the next dollar of taxable income will be taxed.