Which of the Following Statements Is False

question 8

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:

Cost of Equity

The rate of return required by a company's shareholders for investing in the company's equity.

PVGO

Present Value of Growth Opportunities; a model to estimate the portion of a company's stock price that is attributed to future growth opportunities.

Stock Price

The current price at which a particular stock can be bought or sold in the market, influenced by supply and demand, company performance, and market sentiment.

Forecast Earnings

An estimate of a company's future earnings per share over a specific period, often used by analysts to project future financial performance.