FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 22: Leasing

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 71

Multiple Choice

Review LaterAdd Note

Review Later

What is the net advantage to leasing if your firm, for whatever reason, does not have to pay any taxes for at least the next three years?

A) -$122,051
B) -$63,083
C) -32,689
D) -$24,121
E) -$12,060

F) A) and B)
G) None of the above

Correct Answer

verified

Show Answer

Question 72

Multiple Choice

Review LaterAdd Note

Review Later

Omni Leasing borrows money from Delta Financial on a nonrecourse basis to buy $250,000 of equipment from Alpha Equipment Sales. Omni then leases that equipment to Ajax Industrial Products. After six months, Ajax defaults on the lease. As a result,:

A) Delta Financial must collect the loan payments it is due from Ajax instead of from Omni.
B) Omni will repossess the equipment which it can then sell to meet its debt obligation to Delta.
C) Omni is forced to make loan payments on equipment which is no longer producing income for the firm.
D) Ajax will return the equipment to Alpha and Alpha will pay the remaining lease payments to Omni.
E) Ajax keeps the equipment, Omni is freed from its debt, and Delta bears the entire loss with no option for recovery.

F) C) and D)
G) A) and B)

Correct Answer

verified

Show Answer

Question 73

Multiple Choice

Review LaterAdd Note

Your firm needs to either buy or lease $230,000 worth of vehicles. These vehicles have a life of 4 years after which time they are worthless. The vehicles belong in CCA class 10 (a 30% class) and can be leased at a cost of $68,000 a year for the 4 years. The corporate tax rate is 34% and the cost of debt is 10%. What is the present value of the depreciation tax shield?

A financial lease:

Which one of the following statements concerning operating and financial leases is correct?

A leveraged lease is defined as a:

Your firm is considering either leasing or buying some new equipment. The lease payments will be $21,000 a year. The purchase price is $59,000. The equipment has a 3-year life after which time it is expected to have a resale value of $22,000. The equipment belongs in a 25 percent CCA class. Your firm borrows money at 8 percent, and normally has a 34 percent tax rate. The company does not expect to owe any taxes for at least 5 years because they have accumulated net operating losses. What is the incremental cash flow for year 2 if the company decides to lease the equipment rather than purchase it?

If a firm does not expect to owe taxes for a few years and needs some equipment, the firm should:

If the future market value of the asset is difficult to predict, then this scenario makes the asset a likely candidate for leasing.

The cost of the asset if purchased today following should be included in a lease-purchase analysis.

The most cited reason why firms enter into lease agreements is to:

When computing the net advantage to leasing you should use the _____ as the discount rate.

Breakstone, Inc. needs to acquire $280,000 worth of equipment. The equipment has a 5-year life and will be worthless after that time. This equipment belongs in a 35 percent CCA class and can be leased from Mangrove Leasing for $64,400 a year. Breakstone borrows money at 8.25 percent, and has sufficient tax loss carryovers to offset any potential taxable income the firm might have for the next five years. What is the net advantage to leasing?

The amount of the benefit to be derived from the use of the asset should be included in a lease-purchase analysis.

Daily Enterprises is contemplating the acquisition of some new equipment. The purchase price is $47,000. The company expects to sell the equipment at the end of year 4 for $5,000. The firm uses MACRS depreciation which allows for 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent depreciation over years 1 to 4, respectively. The equipment can be leased for $12,500 a year for 4 years. The firm can borrow money at 7.5 percent and has a 34 percent tax rate. What is the incremental annual cash flow for year 4 if the company decides to lease the equipment rather than purchase it?

Which of the following factors will classify a lease as a capital lease for accounting purposes? If the lease transfers ownership of the asset to the lessee by the end of the lease, this will classify the lease as a capital lease for accounting purposes.

The reason for "hiding" a financial lease is the hope that the lease:

Rosie's Grill is trying to decide whether to lease or buy some new equipment. The equipment costs $49,000, has a 3-year life, and is worthless after the 3 years. The after-tax discount rate is 5.5 percent. The equipment belongs in a 25 percent CCA class and the after-tax annual lease payment is $11,375. The firm faces a tax rate of 35 percent. What is the net advantage to leasing?

A financial lease in which the lessor borrows a substantial fraction of the cost of the leased asset on a nonrecourse basis is called a(n) ___________.

Whizzo Manufacturing needs a new computer-operated lathe. Both ABC Corp. and XYZ Corp. will lease the equipment to Whizzo. All lease terms are identical, except the lease payment and the cancellation option. ABC will allow cancellation after two years while XYZ allows for cancellation of the lease contract at any time. All else equal, Whizzo should be willing to make a higher lease payment for the ABC lease.