Question 1

Blanket inventory loans are illustrations of unsecured short‑term credit.​

Accepted Answer

A) True 
 B)False

Question 2

A financial lease is similar to an operating lease, since​

Accepted Answer

A)  in both cases the lessee has the use of the asset​ 
B)  ​in both cases the lease has a maintenance contract 
C)  ​the lessee owns the asset 
D)  ​the lease payment is not tax deductible 
A)  in both cases the lessee has the use of the asset​ 
B)  ​in both cases the lease has a maintenance contract 
C)  ​the lessee owns the asset 
D)  ​the lease payment is not tax deductible

Question 3

A firm could lease the equipment in the previous question for $3,700 a year. If the firm purchased the equipment for $10,000, the maintenance expense will be $350 a year; depreciation is $2,500 annually, and the firm pays $250 to have the equipment removed. Construct projected annual cash outflows for each alternative. Assume a 25% income tax rate. Is leasing the better alternative if the firm uses 10 percent cost of funds?​

Accepted Answer

Determination of cash flows under purcha

Question 4

Both lease payments and depreciation are tax deductible expenses for the lessee.​

Accepted Answer

A) True 
 B)False

Question 5

If a term loan requires equal annual payments that pay the interest and retire the principal, that is similar to​

Accepted Answer

A)  ​lease payments 
B)  ​mortgage payments 
C)  ​dividend payments 
D)  ​compensating balances 
A)  ​lease payments 
B)  ​mortgage payments 
C)  ​dividend payments 
D)  ​compensating balances

Question 6

If a term loan requires equal annual payments that retire the loan and pay the interest, that is similar to​

Accepted Answer

A)  lease payments​ 
B)  ​mortgage payments 
C)  ​dividend payments 
D)  ​a sinking fund 
A)  lease payments​ 
B)  ​mortgage payments 
C)  ​dividend payments 
D)  ​a sinking fund

Question 7

Term loans are frequently retired by annual dividend payments.​

Accepted Answer

A) True 
 B)False

Question 8

What is the repayment schedule for the first three years for a twenty‑year mortgage loan of $75,000 with a 12% rate of interest if the annual payment is $10,041.50? (This material was initially covered in Chapter 7, and the concept reappears in this chapter.)​

Accepted Answer

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Question 9

The lessor depreciates the equipment while the lessee deducts the cost of the lease.​

Accepted Answer

A) True 
 B)False

Question 10

All term loans are supported by collateral.​

Accepted Answer

A) True 
 B)False

Question 11

The firm will prefer debt to leasing since interest is a tax deductible expense while lease payments are not tax deductible.​

Accepted Answer

A) True 
 B)False

Question 12

Intermediate term notes sold to the general public are usually secured by collateral.​

Accepted Answer

A) True 
 B)False

Question 13

The lessor owns the asset while the lessee has the use of the asset.​

Accepted Answer

A) True 
 B)False

Question 14

An operating lease generally does not have a maintenance contract.​

Accepted Answer

A) True 
 B)False

Exam 27: Intermediate-Term Debt and Leasing

Blanket inventory loans are illustrations of unsecured short‑term credit.​

A financial lease is similar to an operating lease, since​

Both lease payments and depreciation are tax deductible expenses for the lessee.​

If a term loan requires equal annual payments that pay the interest and retire the principal, that is similar to​

If a term loan requires equal annual payments that retire the loan and pay the interest, that is similar to​

Term loans are frequently retired by annual dividend payments.​

What is the repayment schedule for the first three years for a twenty‑year mortgage loan of $75,000 with a 12% rate of interest if the annual payment is $10,041.50? (This material was initially covered in Chapter 7, and the concept reappears in this chapter.)​

The lessor depreciates the equipment while the lessee deducts the cost of the lease.​

All term loans are supported by collateral.​

The firm will prefer debt to leasing since interest is a tax deductible expense while lease payments are not tax deductible.​

Intermediate term notes sold to the general public are usually secured by collateral.​

The lessor owns the asset while the lessee has the use of the asset.​

An operating lease generally does not have a maintenance contract.​

The Role of Financial Markets and Financial Intermediaries

Investment Banking

Securities Markets

The Federal Reserve

International Currency Flows

The Time Value of Money

Risk and Its Measurement

Analysis of Financial Statements

The Features of Stock

Stock Valuation

The Features of Long-Term Debt - Bonds

Bond Pricing and Yields

Preferred Stock

Convertile Securities

Investment Returns

Investment Companies

Forms of Businss and Corporate Taxation

Break-Even Analysis and the Payback Period

Leverage

Cost of Capital

Capital Budgeting

Forecasting

Cash Budgeting

Management of Current Assets

Management of Short-Term Liabilities

Options: Puts and Calls

Futures and Swaps

Filters

Blanket inventory loans are illustrations of unsecured short‑term credit.

A financial lease is similar to an operating lease, since

Both lease payments and depreciation are tax deductible expenses for the lessee.

If a term loan requires equal annual payments that pay the interest and retire the principal, that is similar to

If a term loan requires equal annual payments that retire the loan and pay the interest, that is similar to

Term loans are frequently retired by annual dividend payments.

What is the repayment schedule for the first three years for a twenty‑year mortgage loan of $75,000 with a 12% rate of interest if the annual payment is $10,041.50? (This material was initially covered in Chapter 7, and the concept reappears in this chapter.)

The lessor depreciates the equipment while the lessee deducts the cost of the lease.

All term loans are supported by collateral.

The firm will prefer debt to leasing since interest is a tax deductible expense while lease payments are not tax deductible.

Intermediate term notes sold to the general public are usually secured by collateral.

The lessor owns the asset while the lessee has the use of the asset.

An operating lease generally does not have a maintenance contract.