Lease analysis "symmetry" implies that: A Both parties experience identical cash flows. B The economic viability depends solely on the lease terms. C Differences in tax rates can make leasing beneficial to both sides. (D) The NPV and IRR of both parties have opposite signs. s O 16
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- Ch19-1: Is leasing a zero sum game in the sense that any gain to the lessee is a cost to the lessor? If not, how might both parties gain from a lease transaction? In your answer, explain how lessee and the lessor analyze the situation, why they might use different inputs in their analysis, and how those inputs differences could affect the outcomeWhen is it appropriate for the lessee to use the lessor's implicit rate to calculate the present value of the lease payments? A.when the lessee's incremental borrowing rate is lower than the lessor's rate B.whenever the lessee knows what the lessor's rate is C.when the lessor's implicit rate is lower than the lessee's incremental borrowing rate D.when the lessor's rate is higher than the lessee's incremental borrowing rate.X transfers a marketable equity security to Y.For each of the following transferprovisions [considered independently], consider the affected requirement for transfer offinancial assets.a.Y may not use the security as collateral for a loan. How should X account for thetransfer? Why? b.X attaches a call to the security, having an exercise price of $50. How should Xaccount for the transfer if the price is highly unlikely to rise to $50? Why?
- Which of the following is/are good reason(s) for leasing? I. Taxes may be cancelled by leasing II. Leasing may increase certain types of certainty that might increase the value of the firm. III. Transaction costs will cease to exist for a lease contract than for buying the asset IV. Leasing facilitates the management of the firm's cash flows. V. Leasing provides 100 percent financing whereas loans require an initial down payment. Select one: a. I and III only b. IV only c. III only d. I and IV only e. I, III, and IV onlyWhich of the following is/are good reason(s) for leasing? I. Taxes may be cancelled by leasing II. Leasing may increase certain types of certainty that might increase the value of the firm. II. buying the asset Transaction costs will cease to exist for a lease contract than for IV. Leasing facilitates the management of the firm's cash flows. V. Leasing provides 100 percent financing whereas loans require an initial down payment. Select one: O a. IV only O b. I and IV only Oc. I and II only O d. II only O e. I, II, and IV onlyWhich of the following statements is most CORRECT? Oa. A key difference between a capital lease and an operating lease is that with a capital lease, the lease payments provide the lessor with a return of the funds invested in the asset plus a return on the invested funds, whereas with an operating lease the lessor depends on the residual value to realize a full return of and on the investment. Ob. Finance leases usually have a cancelation feature. Oc. Capital, or financial, leases generally provide for maintenance by the lessor. Od. Capitalizing a lease means that the firm issues equity capital in proportion to its current capital structure, in an amount sufficient to support the lease payment obligation. Oe. The fixed charges associated with a lease can be as high as, but never greater than, the fixed payments associated with a loan.
- Which one of the following accurately describes an aspect /aspects of a leveraged lease? I. The lenders own the leased asset. I. The lessee pays all lease payments to the lenders. II. The lessor has a first lien on the leased asset. IV. The lessor receives the tax benefits associated with ownership of the leased asset. V. The lessee does not have to pay the remaining lease payments if the lessor defaults on the nonrecourse loan. Select one: O a. IIl and IV only O b. IV and V only O c. I, Il and IV only O d. IV only O e. I and IIl onlyIf the lessee and lessor use different interest rates to account for a finance/sales-type lease, then what is going wrong?We classify a lease as a finance lease if: Multiple Choice the present value of lease payments is less than the asset's book value. the present value of lease payments is less than the asset's fair value. the lessee obtains control of the use of the asset. the usual risks and rewards are retained by the lessor.
- A sale and leaseback arrangement does which one of the following? Select one: O a. allows the lessor to continue using the leased asset without any interruptions O b. provides the lessee with an immediate cash inflow equivalent to the initial lease payment O c. allows the lessee to generate cash while continuing to have use of the asset O d. provides the lessor with an immediate cash inflow equivalent to the market value of the leased asset O e. allows the lessee to retain title of the assetWhen both the gross investment and cost of the leased asset is equal for both direct and sales-type finance lease with the sales-type finance lease resulting to a gross profit, which of the two would have a lower implicit interest rate on the lease? A)Cannot be determined B)Direct Finance Lease C)Equal for both D)Sales-Type LeaseWhy might leasing be advantageous for both the lessor and the lessee? Group of answer choices If the lessor's tax rates are higher, the lessor can share some of its tax benefits with the lessee in the form of higher lease payments. The lessor can share some of the benefits related to lower transaction costs with the lessee in the form of lower lease payments. More than one of the other statements is correct. If the cost of capital is lower for the lessee, then the lessee can share some of the lower cost of capital with the lessor in the form of higher lease payments. None of the other statements is correct.