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If a Financial Lease Analysis Uses a Higher Discount Rate

Question 11

Multiple Choice

If a financial lease analysis uses a higher discount rate than a lessee would ordinarily use on conventional secured loan, which one of the following reasons would best explain that dichotomy?


A) the lessor charges a higher interest rate on the lease than normally.
B) the asset is unreliable, so requires a higher discount rate.
C) the lessee may be unsure that he can earn enough taxable income to use the tax shields in the lease analysis.
D) the discount rate is uncertain, so a higher one is used.

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