Question from Financial Management Theory and Practice In the lease versus buy d

Question

Question from Financial Management Theory and Practice

In the lease versus buy decision, leasing is often preferable:

(a) because it has no effect on the firm's ability to borrow to make other investments.
(b) because, generally, no down payment is required, and there are no indirect interest costs.
(c) because lease obligations do not affect the firm's risk as seen by investors.
(d) because the lessee owns the property at the end of the least term.
(e) because the lessee may have greater flexibility in abandoning the project in which the leased property is used than if the lessee bought and owned the asset.

Explanation / Answer

The correct answer is E. Every other response is false and for every answer besides B, the exact opposite is the case. For B, while no down payment is required for either lease type (operating or capital) there ARE indirect interest costs. Hope this helps!

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