The relevant discount rate for evaluating a lease is the firm's:
A) cost of equity financing.
B) pretax cost of borrowing.
C) aftertax cost of borrowing.
D) risk-free rate of return.
E) market rate of return on short-term assets.

Question

Quizplus · Accepted Answer

The aftertax cost of borrowing reflects the actual cost of financing the lease for the firm, as it takes into account any tax benefits associated with interest payments. This discount rate should be used to evaluate the lease as it accurately reflects the cost of financing for the firm.

The Relevant Discount Rate for Evaluating a Lease Is the Firm's