Which of the Following Must Be Considered When Making a Lease-Versus-Purchase

question 26

Multiple Choice

Which of the following must be considered when making a lease-versus-purchase decision?

• A) the before-tax cash outflows for each year under the lease alternative
• B) the before-tax cash outflows for each year under the purchase alternative
• C) the after-tax cash outflows for each year under the lease alternative
• D) the depreciation expense under the lease

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Definitions:

Cost of Equity

The return a firm theoretically pays to its equity investors, i.e., shareholders, to compensate them for the risk they undertake by investing their capital.

Retained Earnings

The portion of a company's profits not distributed to shareholders as dividends but kept back to reinvest in the business.

DCF Approach

The Discounted Cash Flow (DCF) approach involves estimating the present value of an investment based on its expected future cash flows, adjusting for the cost of capital.

Cost of Equity

The rate of return a company is expected to pay to its shareholders to compensate them for the risk of investing in the company.