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ACCA official – Sample question – SepDec 2021 – Hawker (Borrow or lease)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › ACCA official – Sample question – SepDec 2021 – Hawker (Borrow or lease)

  • This topic has 1 reply, 2 voices, and was last updated 12 months ago by John Moffat.
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  • Author
    Posts
  • February 1, 2022 at 11:59 pm #647911
    nataliemcc
    Participant
    • Topics: 6
    • Replies: 1
    • ☆

    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!

    February 2, 2022 at 7:21 am #647927
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51543
    • ☆☆☆☆☆

    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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