Question
In: Finance
The decision rule for a lease versus buy decision is "buy if the equivalent annual cost...
The decision rule for a lease versus buy decision is "buy if the equivalent annual cost of ownership and operation is greater than the best rate you can get from an outsider (lessor)."
True or False?
Please explain
Solutions
Expert Solution
The correct answer is False
Leasing refers to the grant of use of the asset by the lessor in exchange of the payments for a specific period of time while buying refers to purchasing the assets in order to get the ownership right.
The equivalent cost of the ownership is calculated and if the equivalent cost is lower then only the buying decision is considered over leasing. Therefore, the statement is false
jeff jeffy answered 2 years agoRelated Solutions
In a lease-versus-buy analysis, the correct comparison is the cost of lease financing versus the cost...
In a lease-versus-buy analysis, the correct comparison is the
cost of lease financing versus the cost of the alternative
financing method to be used if the asset is not leased.
True
False
Why is the equivalent annual cost method potentially useful in decision making? Why would you use...
Why is the equivalent annual cost method potentially useful in
decision making? Why would you use the real discount rate to
compute the EAC? What problem(s) do you see with using the
equivalent annual cost method to evaluate a company's options?
Assume that you are examining a lease versus buy analysis and you suddenly realize that the...
Assume that you are examining a lease versus buy analysis and
you suddenly realize that the residual value is considered to be
more risky than the rest of the cash flows. Then, which of the
following is correct?
A.
If the residual value were included as an outflow (a negative
cash flow), the increased risk would be reflected by applying a
lower discount rate to the residual value cash flow.
B.
The discount rate applied to the cash flows is...
The Decision to Lease or Buy at Warf Computers Warf Computers has decided to proceed with...
The Decision to Lease or Buy at Warf Computers Warf Computers
has decided to proceed with the manufacture and distribution of the
virtual keyboard (VK) the company has developed. To undertake this
venture, the company needs to obtain equipment for the production
of the microphone for the keyboard. Because of the required
sensitivity of the microphone and its small size, the company needs
specialized equipment for production. Nick Warf, the company
president, has found a vendor for the equipment. Clapton...
Proof that the NPV rule is equivalent to the rate of return rule if the investment...
Proof that the NPV rule is equivalent to the rate of return rule
if the investment period is 1 Year.
explain at least 3 factors that pertain to your decision to either buy or lease your...
explain at least 3 factors that pertain to your decision to
either buy or lease your next vehicle.
0
Car decision. Assume you need a car and you are evaluating lease vs. buy options. The...
Car decision. Assume you need a car and you are evaluating lease
vs. buy options. The buying option is with auto loan at interest
rate of 3%. The dealer offers you the following. Lease option:
$2,000 security deposit, $500 monthly payment for 48 months.
Expected end of lease charges are $600. Purchase option: $4,000
down payment, $600 monthly payment for 48 months. At the end the
car is estimated to have resale value of $8,000. Do the proper
analyses and...
state some of the effects of an operating lease versus a capital lease; this is with...
state some of the effects of an operating lease versus a capital
lease; this is with reference to the restatement of an operating
lease to a capital lease.
Lease versus Buy Big Sky Mining Company must install $1.5 million of new machinery in its...
Lease versus Buy
Big Sky Mining Company must install $1.5 million of new
machinery in its Nevada mine. It can obtain a bank loan for 100% of
the purchase price, or it can lease the machinery. Assume that the
following facts apply:
The machinery falls into the MACRS 3-year class. (The
depreciation rates for Year 1 through Year 4 are equal to 0.3333,
0.4445, 0.1481, and 0.0741.)
Under either the lease or the purchase, Big Sky must pay for
insurance,...
Lease versus Buy Big Sky Mining Company must install $1.5 million of new machinery in its...
Lease versus Buy
Big Sky Mining Company must install $1.5 million of new
machinery in its Nevada mine. It can obtain a bank loan for 100% of
the purchase price, or it can lease the machinery. Assume that the
following facts apply:
The machinery falls into the MACRS 3-year class.
Under either the lease or the purchase, Big Sky must pay for
insurance, property taxes, and maintenance.
The firm's tax rate is 30%.
The loan would have an interest rate...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Explain the capabilities of the Ollgdbg and its interfaces. What is rebasing?
- Woodbridge Manufacturing case in Appendix E, and use the three primary project evaluation methods (NPV, IRR...
- I need some good/new/not common research topics for my proposal assignment (Don't Need Political Topics, Technology...
- Write a C++ program that reads integers from standard input until end of file. Print out...
- Woo Audio is a small company in New York that makes high-quality headphone amplifiers. The company...
- How are users categorized? In Linux, which user has all the privileges? Why do we need...
- Force Table: If the center ring were to have considerable mass, what effect would it have...
ADVERTISEMENT