Question

1.     Which of the following is True? a. The riskiness of cash flow from the residual...

1.     Which of the following is True?

a.

The riskiness of cash flow from the residual value of the real estate is always similar to the riskiness of cash flow from the corporation’s core business.

b.

Real estate may have a lower current return than the typical investment that the corporation makes. Thus, owning the real estate may lower the company’s return on assets.

c.

The capital commitments with owning are lower than the capital commitments associated with leasing.
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Answer #1

a) This statement is false. The riskiness of the cash flows from the residual value of the real estate may depend on factors like property value, rental value, location etc. Whereas riskiness of cash flow from the corporation's core business may depend on entirely different factors.

b) This statement is True.

c) This statement is false. In case of owning, you commit the whole value of the asset whereas in case in leasing, you only commit the monthly or annual lease rentals.

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