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.

Question

Quizplus · Accepted Answer

The WACC (Weighted Average Cost of Capital) is used in the decision-making process to acquire an asset, reflecting the overall cost of capital (including equity and debt). The lease versus purchase decision is primarily a financing decision, focusing on the most cost-effective method of financing the asset rather than the cost of capital involved in its acquisition.

The WACC Is Not Used in the Lease Versus Purchase