What should a company maximising EVA use discount rate for evaluating buy vs lease option. Is it WACC or bank?
July 22nd, 2010
1 comment
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.
