The WACC Is Not Used in the Lease Versus Purchase

question 52

Multiple Choice

The WACC is not used in the lease versus purchase decision because:

• A) the WACC was used in the decision to acquire the asset, this is only a financing decision.
• B) the WACC is used only when a lease alone is considered and not a lease versus purchase.
• C) the WACC does not include the lease cost of capital and therefore should not be used.
• D) tax rates of the lessor may be different than the lessee and therefore the WACC is incorrect.
• E) when a bank arranges a lease they do not consider the lessee's cost of capital.

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Definitions:

Dumping

The practice of a company selling a product in a foreign market at a price lower than its cost of production or lower than the price in its domestic market.

Comparative Advantage

The ability of an individual, company, or country to produce a good or service at a lower opportunity cost than competitors, leading to more efficient international trade.

Economics

The study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided.

Efficiency

The condition in which the economy is producing what people want at least possible cost.