In the net advantage to leasing calculation, after-tax salvage value is discounted at the firm's
A)weighted (marginal) cost of capital
B)cost if internal equity capital
C)cost of external equity capital
D)after-tax marginal cost of borrowing

Question

Quizplus · Accepted Answer

After-tax salvage value represents the selling price that the firm can expect to receive at the end of the lease. Discounting this amount at the firm's weighted cost of capital provides a more accurate representation of the present value of the salvage value. This allows for a fair comparison between the net present value of leasing and purchasing options. The other options (B, C, D) are not relevant as they do not accurately reflect the cost of capital for the firm in question.

In the Net Advantage to Leasing Calculation, After-Tax Salvage Value