Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Question
Chapter 25.4, Problem 1CC
Summary Introduction
To compare: The potential gains from leasing if the lessee plans to hold the asset for only a small fraction of its useful life.
Introduction: Lease is a contract between the lessee and lessor for the use of an asset. Lessee agrees to pay a specific amount as per contract to the lessor for the use of the lessor asset.
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How does Leasing offer protection against the risk of declining asset values?
Why might refinancing be considered an alternative to a sale-leaseback?
What are two motivations to sell an asset, even if the current value is less than what you paid for it?
Chapter 25 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 25.1 - In a perfect capital market, how is the amount of...Ch. 25.1 - Prob. 2CCCh. 25.2 - Prob. 1CCCh. 25.2 - Is it possible for a lease to be treated as an...Ch. 25.3 - Why is it inappropriate to compare leasing to...Ch. 25.3 - Prob. 2CCCh. 25.3 - Prob. 3CCCh. 25.4 - Prob. 1CCCh. 25.4 - Prob. 2CCCh. 25 - Suppose an H1200 supercomputer has a cost of...
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- How does the Leasing reduce the upfront cash needed to use an asset?arrow_forwardWhich of the following scenarios regarding a sale and leaseback transaction would result to a loss to the seller-lessee? Fair Value < Carrying Amount Fair Value > Carrying Amount Sale Price < Fair Value Sale Price > Fair Valuearrow_forwardWhich one of the following is not an advantage of leasing fixed asset? a. Repairs and maintenance are borne by the lessor b. Risk of loss due to obsolescence is on the lessee c. Lessee has access to asset without the need to purchase the asset d. Lessor becomes the owner of the assetarrow_forward
- Reasons a company may choose to lease an asset include all of the following, except for short-term need for the asset.O high risk of obsolescence.O lack of cash.O preferential tax treatment of leased assets.arrow_forwardWhich of the following payback methods assumes that the asset acquired may not last its estimated life. A. Traditional payback B. Present value payback C. Bail-out payback D. Payback reciprocalarrow_forwardDiscuss the residual value of the leased asset. How does it impact the PV of rental payments computation of the Lessee and the computation of the rental payment by Lessor?arrow_forward
- When does a buyer-lessor recognize a financial asset from a sale and leaseback transaction? Fair Value > Carrying Amount Fair Value < Carrying Amount Sale Price > Fair Value Sale Price < Fair Valuearrow_forwardIf the residual value of a leased asset is guaranteed by a third party:arrow_forwardWhat is the motivation for a sale-leaseback of the land?arrow_forward
- Which of the following amounts would be used in calculating a lessee's right of use asset (ROU)? ) O Estimated Salvage Value O Market Value of the Asset O Unguaranteed Residual Value Bargain Purchase Optionarrow_forward1. In a sale and leaseback transaction, what is used by the buyer-lessor to depreciate the cost of the leased asset? A. Lease term B. Total Useful life C. Excess of useful life over the lease term D. Remaining useful life 2. Which of the following scenarios regarding a sale and leaseback transaction would result to a loss to the seller-lessee? A. Fair Value < Carrying Amount B. Sale Price < Fair Value C.Sale Price > Fair Value D.Fair Value > Carrying Amount 3. When does a buyer-lessor recognize a financial asset from a sale and leaseback transaction? A. Sale Price > Fair Value B. Fair Value < Carrying Amount C. Sale Price < Fair Value D. Fair Value > Carrying Amountarrow_forwardWhy would refinancing be an alternative to sale of the property?arrow_forward
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