Assume the net present value of a lease relative to a purchase is $150.This indicates that the:

Question

Quizplus · Accepted Answer

A positive net present value of a lease relative to a purchase indicates that the cash flows from leasing are higher than those from purchasing. Therefore, the lease is preferred. Option A is incorrect because the net present value does not provide information about the purchase price or the reduction in optimal debt level. Option C is incorrect because the net present value is not equivalent to the optimal lease payment. Option D is incorrect because a positive net present value indicates a net advantage of leasing. Option E is incorrect because the net present value represents the advantage to both parties involved in the lease agreement.

Assume the Net Present Value of a Lease Relative to a Purchase