Reference no: EM132530991

Doris Doll Co. (DDC) is considering either leasing or buying a new machine. Which of the following circumstances presents a potential disadvantage of leasing, making it the more expensive alternative for DDC?

a) The lessor's risk is lower, and therefore the implied interest rate in the lease is lower, than the interest rate charged by the bank, and thus the lease payments are lower.

b) The lessee would claim lower amounts of CCA on the machine than the lessor if the machine is purchased.

c) The lessor has cost advantages not available to the lessee and may be able to provide maintenance at a lower cost.

d) The lessor may restrict how the asset is used by the lessee.

Wilsons Corp. is examining an international expansion project. Which of the following statements regarding this capital budget analysis is true?

a) The culture of the host country does not need to be considered as part of the quantitative analysis.

b) The company's current WACC can be used for the discount rate for the project as long as all of the capital to fund the investment is raised in Canada.

c) If the company uses foreign long-term debt for funding the expansion, anticipated changes in the foreign exchange rates need not be incorporated into the analysis.

d) Income tax rates in the foreign country will have to be used to determine the tax impacts on income earned.