Whizzo Manufacturing needs a new computer-operated lathe. Both ABC Corp. and XYZ Corp. will lease the equipment to Whizzo. All lease terms are identical, except the lease payment and the cancellation option. ABC will allow cancellation after two years while XYZ allows for cancellation of the lease contract at any time. All else equal, Whizzo should be willing to make a higher lease payment for the ABC lease.

Question

Quizplus · Accepted Answer

Whizzo should be willing to make a higher lease payment for the XYZ lease because it offers more flexibility with the option to cancel at any time, which is generally more valuable.

Whizzo Manufacturing Needs a New Computer-Operated Lathe