FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 27: Leasing

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 41

Multiple Choice

Review LaterAdd Note

Review Later

Heavy Equipment Rentals borrows money on a nonrecourse basis from The Financial Group to fund its purchases of construction equipment such as backhoes,graders,earth movers,etc.This equipment is then leased to contractors.The leases are classified as tax-oriented leases.Which one of the following terms best describes these lease of construction equipment?

A) leveraged lease
B) sale and leaseback arrangement
C) operating lease
D) perpetual lease
E) straight lease

F) A) and D)
G) All of the above

Correct Answer

verified

Show Answer

Question 42

Multiple Choice

Review LaterAdd Note

Review Later

Which one of the following statements is correct concerning taxes and leasing?

A) Tax-deferral is a legitimate reason for leasing.
B) The lessee should be the party with the higher tax bracket.
C) Generally speaking,lessors tend to benefit from leases while lessees do not.
D) If a firm has significant net operating losses,it should be the lessor in a lease.
E) You should only lease an asset if the lease will be fully amortized.

F) D) and E)
G) A) and E)

Correct Answer

verified

Show Answer

Question 43

Multiple Choice

Review LaterAdd Note

In a direct lease,the lessor: I.is the end user of the asset. II.rents the leased asset from the manufacturer. III.owns the asset. IV.is generally an independent leasing company.

-Bob's Pizza is considering either leasing or buying a new oven.The lease payments would be $10,200 a year for 3 years.The purchase price is $29,000.The equipment has a 3-year life and then is expected to have a resale value of $3,100.Bob's Pizza uses straight-line depreciation,borrows money at 10 percent,and has a 32 percent tax rate.What is the net advantage to leasing?

A firm that is very cyclical in nature and requires extra equipment only during its peak periods should consider leasing that equipment using a(n) _____ lease.

Frozen Foods Delivery is considering the purchase of a delivery truck costing $49,000.The truck can be leased for 3 years at $19,500 per year or it can be purchased at an interest rate of 7.5 percent.The estimated life of the truck is 3 years.The corporate tax rate is 34 percent.The company does not expect to owe any taxes for the next several years due to accumulated net operating losses.The firm uses straight-line depreciation.What is the net advantage to leasing?

The Wildcat Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling system for its oil exploration business.Management has decided that it must use the system to stay competitive;it will provide $1.2 million in annual pretax cost savings.The system costs $6.7 million and will be depreciated straight-line to zero over 4 years.Wildcat's tax rate is 35 percent,and the firm can borrow at 11 percent.Lambert Leasing Company has offered to lease the drilling equipment to Wildcat for payments of $1,700,000 per year.Lambert's policy is to require its lessees to make payments at the start of the year.Lambert requires Wildcat to pay a $270,000 security deposit at the inception of the lease.What is the NAL of leasing the equipment?

Frank's Auto Repair can purchase a new machine for $136,000.The machine has a 4-year life and can be sold at the end of year 4 for $12,000.Frank's 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 $35,900 a year.The firm can borrow money at 7.5 percent and has a 32 percent tax rate.The company does not expect to owe any taxes for at least the next 4 years due to net operating losses.What is the incremental annual cash flow for year 4 if the company decides to lease rather than purchase the equipment?

Which one of the following statements is correct concerning the lease versus buy decision?

You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a very common practice with expensive,high-tech equipment) .The scanner costs $3.5 million and it would be depreciated straight-line to zero over 4 years.Because of radiation contamination,it will actually be completely valueless in 4 years.You can lease it for $875,000 per year for 4 years.Assume the tax rate is 33 percent.You can borrow at 10 percent before taxes.What is the net advantage to leasing from your company's standpoint?

Which of the following apply to the lessee of a sale and leaseback arrangement? I.may have option to purchase asset at end of lease term II.receives cash from the sale of the asset III.maintains ownership rights IV.uses the asset

Which one of the following will classify a lease as a capital lease for accounting purposes?