Exam 19: Lease and Intermediate-Term Financing

ANB Leasing is planning to lease an asset costing $210,000.The lease period will be 6 years.At the end of 6 years, the salvage value is estimated to be $30,000.The asset will be depreciated on a straight-line basis of $30,000 per year over the 6-year period.ANB's marginal income tax rate is 40 percent, but its average tax rate is only 31.5%.If ANB Leasing requires a 12 percent after-tax rate of return on the lease, determine the required annual beginning of the year lease payments.

The type of lease that is a three-sided agreement among the lessee, the lessor and the lenders is:

The contract period of an operating lease tends to

In a lease arrangement, the owner of the property is called the

In a leveraged lease, how much of the asset's full purchase price does the lessor supply?

All of the following are advantages of leasing except

Lease-buy analysis assumes that the alternative to leasing as the source of financing is

In the net advantage to leasing calculation, all cash flows (except salvage value) are discounted at the firm's

An operating lease is often referred to as:

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.Under terms of the lease, payments will be made at the beginning of each of the 4 years.If Wrenn requires a 12% after-tax rate of return on the lease, what is the lease payment that Wrenn will require from Daymark? Assume a marginal tax rate of 40%.

Leasing accounts for more than percent of all business investment in equipment.

Sandia, Inc.wants to acquire a $360,000 computer controlled printing press.If owned the press would be depreciated on a straight-line basis over 10 years to a book salvage value of $0.The actual cash salvage value is expected to be $25,000 at the end of 10 years.If purchased, Sandia will incur annual maintenance expenses of $3,000.These expenses would not be incurred if the press is leased.If the press is purchased, Sandia could borrow the needed funds at an annual pre-tax interest rate of 10%.The lease rate would be $48,000 per year, payable at the beginning of each year.If Sandia has an after-tax cost of capital of 12% and a marginal tax rate of 40%, what is the net advantage to leasing?

Leigh Fibers wishes to lease an automated knitting machine valued at $420,000 from Ogden Capital for a period of 10 years.Ogden expects to depreciate the asset on a straight-line basis to a salvage value of $0.Actual salvage value is also expected to be $0 at the end of the 10-year period.If Ogden requires a 15% after-tax rate of return on the lease, what is the lease payment required from Leigh Fiber? Assume that the lease payments will be made at the beginning of each year and that the marginal tax rate is 40%.

Index Laboratories is considering leasing a thermoplastic molder.The lease would require 7 beginning of the year payments of $122,000 each.If Index capitalizes this lease for financial reporting purposes at a 12% rate, what asset amount will be reported initially on its balance sheet?

All of the following are types of "true leases" EXCEPT:

Which of the following leases is not likely to be viewed as a lease from the perspective of the Internal Revenue Service?

In a leveraged lease, what items secure the mortgage bonds of the lender?

Normally, when a firm operates under the protection of a bankruptcy court, lease payments .

All of the following are disadvantages of leasing except

The IRS has general rules pertaining to the tax status of true leases which allow the annual lease payments to be tax deductible.What are those rules?