Question 1

All of the following have been cited as advantages of leasing by small businesses except:

Accepted Answer

A) less cash required up front 
B) fewer restrictive covenants from lessor than lenders 
C) lower effective interest costs relative to borrowing 
D) quicker approvals from lessors than from lenders 
A) less cash required up front 
B) fewer restrictive covenants from lessor than lenders 
C) lower effective interest costs relative to borrowing 
D) quicker approvals from lessors than from lenders C

Question 2

Daymark (lessee) wishes to lease a printing press valued at $60,000 from Wrenn Capital (lessor) for a period of 4 years.Wrenn expects to depreciate the press using 3-year MARCS depreciation rates.Actual salvage value is expected to be $8,000 at the end of 4 years.If Wrenn requires a 12% after-tax rate of return on the lease, what is the lessor's amount to be amortized? Assume a marginal tax rate of 40%.

Accepted Answer

A) $40,693 
B) $38,725 
C) $37,640 
D) $35,613 
A) $40,693 
B) $38,725 
C) $37,640 
D) $35,613 C

Question 3

Uminum, the world's largest producer of feldspar, is considering leasing a sifter that costs $450,000.The 5 year lease requires 5 beginning of the year payments.The leasing company is depreciating the sifter on a straight-line basis of $90,000 per year to a salvage value of zero, but assumes the actual salvage value at the end of 5 years is expected to be $25,000.If the leasing company desires to earn an 11% after-tax rate of return of the lease, what annual lease payment will they require? Assume a marginal tax rate of 40%.

Accepted Answer

A) $125,145 
B) $75,087 
C) $148,517 
D) $122,736 
A) $125,145 
B) $75,087 
C) $148,517 
D) $122,736 A

Question 4

Ajax Capital has determined the amount to be amortized on an extruder is $540,000.If the required rate of return is 14%, what will be the total interest received over the life of the lease given that lease payments will be made at the beginning of each of the 7 years of the lease agreement? Assume a marginal tax rate of 40%.

Accepted Answer

A) $233,269 
B) $748,786 
C) $811,080 
D) $110,467 
A) $233,269 
B) $748,786 
C) $811,080 
D) $110,467

Question 5

In considering the advantages of leasing, which of the statements is/are correct?

Accepted Answer

A) Leasing provides approximately 50% of the necessary financing. 
B) Leasing can decrease the firm's liquidity. 
C) Both a and b are correct. 
D) Neither a nor b is correct. 
A) Leasing provides approximately 50% of the necessary financing. 
B) Leasing can decrease the firm's liquidity. 
C) Both a and b are correct. 
D) Neither a nor b is correct.

Question 6

Leasing offers a number of potential advantages.All of the following are advantages except

Accepted Answer

A) flexibility 
B) effective depreciation of land 
C) generally lower costs 
D) may be the only source of financing available to the marginally profitable firm 
A) flexibility 
B) effective depreciation of land 
C) generally lower costs 
D) may be the only source of financing available to the marginally profitable firm

Question 7

What are the advantages of leasing?

Accepted Answer

1.Leases offer flexible financing-there

Question 8

The sale and leaseback is advantageous to the lessee because

Accepted Answer

A) the lessee cannot continue using the asset 
B) the lessee receives cash from the sale of the asset 
C) the lessee receives title to property at the termination of the lease 
D) the lessee is never required to pay taxes and insurance 
A) the lessee cannot continue using the asset 
B) the lessee receives cash from the sale of the asset 
C) the lessee receives title to property at the termination of the lease 
D) the lessee is never required to pay taxes and insurance

Question 9

Explain a leveraged lease.

Accepted Answer

A leveraged lease is a three-sided agree

Question 10

All of the following are first determined by the lessee before a direct lease EXCEPT:

Accepted Answer

A) Equipment that will be leased 
B) What taxes will be paid based on the lease 
C) Options, warranties service agreements that will have to be made 
D) What price will be paid for the asset 
A) Equipment that will be leased 
B) What taxes will be paid based on the lease 
C) Options, warranties service agreements that will have to be made 
D) What price will be paid for the asset

Question 11

Contech (lessee) wishes to lease a printing press valued at $60,000 from Wrenn Capital (lessor) for a period of 4 years.Wrenn expects to depreciate the asset on a straight-line basis to a salvage value of $0.Actual salvage value is expected to be $8,000 at the end of 4 years.If Wrenn requires a 12 percent after-tax rate of return on the lease, what is the lessor's amount to be amortized? Assume Wrenn's marginal tax rate is 40%.

Accepted Answer

A) $60,000 
B) $38,725 
C) $41,778 
D) $36,690 
A) $60,000 
B) $38,725 
C) $41,778 
D) $36,690

Question 12

A capital lease is considered a(n) agreement.

Accepted Answer

A) negotiable 
B) cancelable 
C) noncancelable 
D) short-term 
A) negotiable 
B) cancelable 
C) noncancelable 
D) short-term

Question 13

All of the following are true of financial leases except

Accepted Answer

A) non-cancelable 
B) lessee is normally responsible for maintenance and insurance 
C) lease payments are normally sufficient to amortize the original cost of the asset 
D) all financial leases are also leveraged leases 
A) non-cancelable 
B) lessee is normally responsible for maintenance and insurance 
C) lease payments are normally sufficient to amortize the original cost of the asset 
D) all financial leases are also leveraged leases

Question 14

Disadvantages of leasing include all of the following except

Accepted Answer

A) leasing usually decreases a firm's liquidity 
B) leasing is often more expensive than purchasing 
C) loss of the asset's salvage value 
D) lessee may have difficulty getting approval to make property improvements on leased real estate 
A) leasing usually decreases a firm's liquidity 
B) leasing is often more expensive than purchasing 
C) loss of the asset's salvage value 
D) lessee may have difficulty getting approval to make property improvements on leased real estate

Question 15

In the net advantage to leasing calculation, after-tax salvage value is discounted at the firm's

Accepted Answer

A) weighted (marginal) cost of capital 
B) cost if internal equity capital 
C) cost of external equity capital 
D) after-tax marginal cost of borrowing 
A) weighted (marginal) cost of capital 
B) cost if internal equity capital 
C) cost of external equity capital 
D) after-tax marginal cost of borrowing

Question 16

In a direct lease, the user-lessee first determines all of the following EXCEPT:

Accepted Answer

A) which manufacturer will supply the equipment 
B) what equipment will be leased 
C) the terms of the lease 
D) what price will be paid for the asset 
A) which manufacturer will supply the equipment 
B) what equipment will be leased 
C) the terms of the lease 
D) what price will be paid for the asset

Question 17

Lancit Media Productions wishes to lease a high speed printer that costs $400,000 for a period of 4 years.The leasing company, GKN Leasing, expects to depreciate the entire value of the printer on a straight-line basis over the 4 year period.Actual salvage value is expected to be $50,000.If GKN requires a 12% after-tax rate of return on the lease, what annual lease payments will GKN require? Assume GKN's marginal tax rate is 35% and that all lease payments occur at the beginning of each year.

Accepted Answer

A) $80,270 
B) $123,493 
C) $138,312 
D) $36,172 
A) $80,270 
B) $123,493 
C) $138,312 
D) $36,172

Question 18

In a(n) , the lessor receives the entire accelerated depreciation tax shield while making a relatively small equity investment.

Accepted Answer

A) operating lease 
B) capital lease 
C) leveraged lease 
D) term lease 
A) operating lease 
B) capital lease 
C) leveraged lease 
D) term lease

Question 19

Unilog is considering leasing a computer from UniNet under a 6-year lease.The computer costs $200,000 and will be depreciated as a 5-year MACRS asset.The expected salvage value of the computer after 6 years is $20,000.UniNet's marginal tax rate is 35 percent and its average tax rate is 30%.UniNet requires a 13 percent after-tax rate of return on leases of this type.What annual, pretax, beginning-of-the-year lease payment must Unilog make to UniNet? (Problem requires MACRS depreciation tables.)

Accepted Answer

A) $48,786 
B) $31,711 
C) $50,500 
D) $16,848 
A) $48,786 
B) $31,711 
C) $50,500 
D) $16,848

Question 20

All of the following are attributes of operating leases except

Accepted Answer

A) lease period normally equals the economic life of the asset 
B) lease payments under the initial lease contract are insufficient to recover the full cost of the asset for the lessor 
C) cancelable 
D) maintenance and insurance normally are responsibility of lessor 
A) lease period normally equals the economic life of the asset 
B) lease payments under the initial lease contract are insufficient to recover the full cost of the asset for the lessor 
C) cancelable 
D) maintenance and insurance normally are responsibility of lessor

Exam 19: Lease and Intermediate-Term Financing

All of the following have been cited as advantages of leasing by small businesses except:

In considering the advantages of leasing, which of the statements is/are correct?

Leasing offers a number of potential advantages.All of the following are advantages except

What are the advantages of leasing?

The sale and leaseback is advantageous to the lessee because

Explain a leveraged lease.

All of the following are first determined by the lessee before a direct lease EXCEPT:

A capital lease is considered a(n) agreement.

All of the following are true of financial leases except

Disadvantages of leasing include all of the following except

In the net advantage to leasing calculation, after-tax salvage value is discounted at the firm's

In a direct lease, the user-lessee first determines all of the following EXCEPT:

In a(n) , the lessor receives the entire accelerated depreciation tax shield while making a relatively small equity investment.

All of the following are attributes of operating leases except

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

The Time Value of Money

A: The Time Value of Money

Fixed-Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Capital Budgeting: Decision Criteria and Real Option Considerations

A: Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital, Capital Structure, and Dividend Policy

Capital Structure Concepts

Capital Structure Management in Practice

A: Capital Structure Management in Practice

Dividend Policy

Working Capital Management

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Financing with Derivatives

A: Financing with Derivatives

Risk Management

International Financial Management

Corporate Restructuring

Filters