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For part A?calculation of NPV of leasing in option 2?why still using the after-tax cost of borrowing of 4%?why no use after-tax weighted average cost of capital of 6%?
Is it need to compared with like-with-like or apples to apples?
Thanks for answering!
We use the WACC when appraising projects. However that is not what we are doing with lease v buy questions – we are simply deciding which is the cheaper of the two. Since borrowing is costing 4% we discount at 4% just to see whether leasing is more or less expensive.
Do watch my free lectures on this where I do explain.
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