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Difficulty: EasyConsumption-Based Model (CapEx vs OpEx)

A company is planning to migrate its workloads to Azure. The finance department wants to understand the cash flow impact of moving from their traditional on-premises data center to a consumption-based cloud model. Which of the following describes a key financial characteristic of this transition?

  1. The company shifts from paying upfront capital expenditures (CapEx) to paying ongoing operational expenditures (OpEx) based on usage.Answer
  2. B
    The company shifts from paying ongoing operational expenditures (OpEx) to paying upfront capital expenditures (CapEx) for cloud hardware.
  3. C
    The company must capitalize the cost of all virtual machines and depreciate them over a five-year period.
  4. D
    The company eliminates all operational expenditures (OpEx) because Azure resources are treated as fixed physical assets.

Answer

The company shifts from paying upfront capital expenditures (CapEx) to paying ongoing operational expenditures (OpEx) based on usage.
The correct option is correct because migrating to a consumption-based cloud model removes the need for upfront capital investment in physical infrastructure (CapEx) and replaces it with ongoing, usage-based operational expenses (OpEx).

Step-by-Step Solution

1
Identify the nature of expenses in on-premises data centers.
On-premises data centers require buying physical hardware upfront, which is a Capital Expenditure (CapEx).
This establishes the starting financial state before migrating to the cloud.
2
Identify the nature of expenses in a consumption-based cloud model.
Azure consumption-based resources are billed as they are used, representing an Operational Expenditure (OpEx).
This defines the target financial state after the migration.
3
Compare the two states to find the correct transition direction.
The transition represents a shift from upfront CapEx (on-premises hardware) to consumption-based OpEx (cloud resources).
This directly answers the question about the financial characteristic of the transition.

Key Concept

Consumption-based models shift costs from CapEx to OpEx
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Topics

Consumption-Based Model (CapEx vs OpEx)

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