What should a company maximising EVA use discount rate for evaluating buy vs lease option. Is it WACC or bank?

Normally a company evaluating buy vs lease option will use its borrowing rate from the bank to discount the cashflows. However if a company’s goal is to maximise its EVA, then for evaluation of lease vs buy decision, the WACC rate should be taken as the discount rate instead of the bank rate. Otherwise company may take a decision which may lowever its EVA.
Please help me to solve this.

By | 2013-08-25T23:19:23+00:00 August 25th, 2013|Mortgages Home Loans Interest Rate|1 Comment

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  1. nyboi630 August 25, 2013 at 11:35 PM - Reply

    Use bank rate to compare if it’s more worthwhile to buy vs. lease.

    Discounting at WACC tells you (once you figure out whether buying or leasing is better) whether THAT decision is adding value.

    OR just discount at WACC, and choose the option with the higher value (if both are negative, don’t lease OR buy)

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