The WACC is not used in the lease versus purchase decision because:
A) the WACC was used in the decision to acquire the asset, this is only a financing decision.
B) the WACC is used only when a lease alone is considered and not a lease versus purchase.
C) the WACC does not include the lease cost of capital and therefore should not be used.
D) tax rates of the lessor may be different than the lessee and therefore the WACC is incorrect.
E) when a bank arranges a lease they do not consider the lessee's cost of capital.

Question

Quizplus · Accepted Answer

The WACC is used in the decision to acquire the asset, but not in the lease versus purchase decision as this is solely a financing decision. The lease versus purchase decision requires considerations such as the cost of borrowing and the benefits of ownership. The WACC is not directly relevant to these factors.

The WACC Is Not Used in the Lease Versus Purchase