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Dear Sir,
I’ve read in Kaplan that Lease Vs. buy is only a financing decision and not an investment decision.
So how is this statement “true”:
“The use of leasing as opposed to purchasing an asset can turn a negative NPV into a positive one.”
Please let me know if I misunderstood something.
Thank you so much in advance.
Regards,
Rajvir Singh Oberai.Lease vs Buy is a financing decision. The decision as to whether or not to get the asset is the investment devision, and for this we discount at the WACC.
You could have the situation where the NPV for the asset itself is negative. However if leasing was cheaper than buying then this could end up meaning that overall the situation could be worthwhile and an overall positive NPV.
You would not be asked for calculations on this particular point.
Have you watched my free lectures on lease vs buy? The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
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