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

question 105

Multiple Choice

All of the following must be considered when making a lease-versus-purchase decision EXCEPT

• A) the after-tax cash flows for each year under the lease alternative.
• B) the after-tax cash flows for each year under the purchase alternative.
• C) the present value of all cash flows.
• D) the depreciation expense under the lease.

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Definitions:

Total Fixed Costs

The sum of all costs that do not change with the level of production or services provided, such as rent and salaries.

Average Variable Cost

The total variable cost of producing a good divided by the quantity of the good produced, representing the variable cost per unit.

Average Total Costs

The total costs of production (fixed plus variable) divided by the total quantity of output produced, expressing the cost on a per-unit basis.

Economies of Scale

The savings that organizations achieve through their size of operation, where the expense per produced unit consistently decreases with an upscaling in operation.