A Lease Contains a Bargain Purchase Option

question 31

Multiple Choice

A lease contains a bargain purchase option.In determining the lessee's capitalizable cost at the beginning of the lease term,the payment called for by the bargain purchase option would be

• A) subtracted at its present value.
• B) added at its exercise value.
• C) added at its present value.
• D) subtracted at its exercise price.

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Definitions:

Net Present Value

Net Present Value (NPV) is a financial metric that calculates the present value of all future cash flows of an investment, minus the initial investment cost.

Analyzing

The process of examining data, documents, or systems in detail in order to understand them better and make informed decisions.

Discount Rate

The interest rate charged by central banks on loans to commercial banks or the interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.

IRR Cross-over

A concept where two projects have the same initial investment but differing cash flows leading to points at which their internal rates of return intersect.