CFA Practice Question

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CFA Practice Question

Which of the following best describes the lessee's incremental borrowing rate?

A. The lessor's rate of return implicit in the lease payments
B. The rate the lessee would likely have paid if it had purchased the asset with external financing
C. The average rate on ten-year AA-rated bonds
Correct Answer: B

SFAS No. 13 defines the lessee's incremental borrowing rate as "that which the lessee would have incurred to borrow the funds necessary to buy the asset on a secured loan basis."

User Contributed Comments 2

User Comment
kalps Lessess' incremental bowworing rate = the rate at which lessee would likely pay if it had purchased the asset with external borrowing
Freddie33 Thanks for the simplification, Kalps
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