Question 1

Which of the following is a suspect argument for leasing?

Accepted Answer

A)  reduced resale costs 
B)  tax differences 
C)  transferring risk 
D)  efficiency gains from specialization 
E)  preserving capital 
A)  reduced resale costs 
B)  tax differences 
C)  transferring risk 
D)  efficiency gains from specialization 
E)  preserving capital E

Question 2

Use the table for the question(s) below.
Danby Construction is considering leasing a new crane for the next 5 years. Danby has created the following table of cash flows to help with the decision:
  
-If Danby's borrowing cost is 7%,and its tax rate is 35%,what is the amount of the lease-equivalent loan for the crane?

Accepted Answer

A)  $96,747 
B)  $369,671 
C)  $348,253 
D)  -$363,441 
E)  $75,329 
A)  $96,747 
B)  $369,671 
C)  $348,253 
D)  -$363,441 
E)  $75,329 B

Question 3

A lease where the lessee has the option to purchase the asset at the end of the lease for a set price that is set upfront in the lease contract is called a

Accepted Answer

A)  fixed price lease. 
B)  $1.00 out lease. 
C)  fair market value lease. 
D)  fair market value cap lease. 
E)  synthetic lease. 
A)  fixed price lease. 
B)  $1.00 out lease. 
C)  fair market value lease. 
D)  fair market value cap lease. 
E)  synthetic lease. A

Question 4

Use the table for the question(s) below.
   
Your firm is a lessor that is planning to buy some new equipment and offer it to another firm through a lease arrangement. You have calculated the above cash flows for a potential lease you might offer.
-If your firm's borrowing cost is 3% and the tax rate is 45%,what is the NPV of buying and leasing?

Accepted Answer

A)  $5,422 
B)  $14,694 
C)  $11,620 
D)  $15,069 
E)  $20,479 
A)  $5,422 
B)  $14,694 
C)  $11,620 
D)  $15,069 
E)  $20,479

Question 5

Use the information for the question(s) below.
Suppose the purchase price of a bulldozer is $90,000, its residual value in four years is certain to be $15,000, and there is no risk that the lessee will default on the lease. Assume that capital markets are perfect and the risk-free interest rate is 6% APR with monthly compounding.
-Suppose that the bulldozer can be leased with a fixed price lease that allows the lessee to buy the asset at the end of the lease for $12,000.The lease payments will be closest to:

Accepted Answer

A)  $2,114 
B)  $1,825 
C)  $1,882 
D)  $2,324 
E)  $1,945 
A)  $2,114 
B)  $1,825 
C)  $1,882 
D)  $2,324 
E)  $1,945

Question 6

What will Luther's balance sheet look like if they acquire the new fleet of delivery trucks using a finance lease?

Accepted Answer

If the firm acquires the fleet through a

Question 7

Use the information for the question(s) below.
St. Martin's Hospital plans to purchase or lease a $2 million dollar CT scanner. The machine falls under asset class 43 and has a capital cost allowance (CCA) rate of 30%. Assume disposal for $0 at the beginning of year 6. If leased, the annual lease payments will be $500,000 per year for five years, and it is a true tax lease. Assume the tax savings savings occur at the end of each year. St. Martin's borrowing cost is 8%, and its tax rate is 35%.
-What is the NPV of the lease from the perspective of a lessor with the same tax rate and borrowing cost as St.Martin's?

Accepted Answer

A)  -$74,890.28. 
B)  -$1,749,890.28 
C)  $1,812,027.19 
D)  $692,559.51 
E)  $104,027 
A)  -$74,890.28. 
B)  -$1,749,890.28 
C)  $1,812,027.19 
D)  $692,559.51 
E)  $104,027

Question 8

A lease in which the lessee receives cash from the sale of the asset and then makes lease payments to retain the use of the asset is called a

Accepted Answer

A)  sales-type lease. 
B)  direct lease. 
C)  sale and leaseback. 
D)  leveraged lease. 
E)  synthetic lease. 
A)  sales-type lease. 
B)  direct lease. 
C)  sale and leaseback. 
D)  leveraged lease. 
E)  synthetic lease.

Question 9

For a lease to be attractive to both the lessee and the lessor,the gains must come from some underlying economic benefits that the leasing arrangement provides.

Accepted Answer

A) True 
 B)False

Question 10

Use the table for the question(s) below.
Luther Industries currently has the following balance sheet (in thousands of dollars):
   
Luther is about to add a new fleet of delivery trucks. The price of the fleet is $1.5 million.
-Suppose the lease is a five-year fair market value lease,and the trucks have a remaining useful life of 8 years.If the monthly lease payments are $22,000 and the appropriate discount rate is 6% APR with monthly compounding,will the lease be classified as an operating lease or a finance lease for the lessee?

Accepted Answer

A)  Finance lease, because the title to the property transfers to the lessee at the end of the lease term. 
B)  Finance lease, because the present value of the minimum lease payments at the start of the lease is substantially all of the asset's fair value. 
C)  Operating lease, because the present value of the minimum lease payments at the start of the lease is less than substantially all of the asset's fair value. 
D)  Operating lease, because the lease term is for the major part of the estimated economic life of the asset. 
E)  Finance lease, because the lease term is for the major part of the estimated economic life of the asset. 
A)  Finance lease, because the title to the property transfers to the lessee at the end of the lease term. 
B)  Finance lease, because the present value of the minimum lease payments at the start of the lease is substantially all of the asset's fair value. 
C)  Operating lease, because the present value of the minimum lease payments at the start of the lease is less than substantially all of the asset's fair value. 
D)  Operating lease, because the lease term is for the major part of the estimated economic life of the asset. 
E)  Finance lease, because the lease term is for the major part of the estimated economic life of the asset.

Question 11

Generally speaking,if the asset's CCA deductions are slower than its lease payments,there are tax gains from a true tax lease if the lessor is in a higher tax bracket than the lessee.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is a valid argument for leasing?

Accepted Answer

A)  avoiding capital expenditure controls 
B)  transferring risk 
C)  preserving capital 
D)  reducing leverage through off-balance-sheet financing 
E)  increased resale costs 
A)  avoiding capital expenditure controls 
B)  transferring risk 
C)  preserving capital 
D)  reducing leverage through off-balance-sheet financing 
E)  increased resale costs

Question 13

What is the difference between a true tax lease and a non-tax lease?

Accepted Answer

With a True tax lease,the lessor receive

Question 14

Use the table for the question(s) below.
  
-Consider the above balance sheet for your firm (in thousands of dollars).You plan on acquiring some new equipment using a $700,000 operating lease.If you go through with the lease,what will be the change in your firm's debt-equity ratio?

Accepted Answer

A)  0.44 
B)  0.56 
C)  0 
D)  0.80 
E)  1.69 
A)  0.44 
B)  0.56 
C)  0 
D)  0.80 
E)  1.69

Question 15

Use the table for the question(s) below.
   
Your firm is contemplating leasing some new equipment. The cash flows of either buying or leasing the equipment are shown in the table above.
-If your firm's borrowing cost is 10% and the tax rate is 40%,what is the NPV of leasing versus borrowing?

Accepted Answer

A)  $41,831 
B)  $158,169 
C)  $178,937 
D)  $21,063 
E)  $27,014 
A)  $41,831 
B)  $158,169 
C)  $178,937 
D)  $21,063 
E)  $27,014

Question 16

What is the difference between a fixed price lease and a fair market value cap lease?

Accepted Answer

A fixed price lease is a lease in which

Question 17

Kitchener Golf Course has decided to lease an aerator for the next 10 years.The purchase price of the machine is $430,000 and there is no residual value.If there is no risk of default and the risk-free rate is 5% APR with monthly compounding,what is the monthly lease payment for a 10-year lease in a perfect capital market?

Accepted Answer

A)  $4,544.39 
B)  $4,519.10 
C)  $4,537.51 
D)  $4,541.89 
E)  $4,560.82 
A)  $4,544.39 
B)  $4,519.10 
C)  $4,537.51 
D)  $4,541.89 
E)  $4,560.82

Question 18

Calculate the monthly lease payments for a four-year fixed price lease that allows the lessee to buy the Bulldozer at the end of the lease for $8,000.

Accepted Answer

Set calculator to BEG mode (An

Question 19

What is the difference between an operating lease and a finance lease?

Accepted Answer

An operating lease is a lease that is vi

Question 20

Suppose your firm is planning on obtaining $750,000 of new equipment using a four-year fair market value lease,and the equipment has a remaining useful life of 7 years.If the monthly lease payments are $12,000 and the appropriate discount rate is 8% APR with monthly compounding,will the lease be classified as an operating lease or a finance lease for the lessee?

Accepted Answer

A)  Finance lease, because the title to the property transfers to the lessee at the end of the lease term. 
B)  Finance lease, because the present value of the minimum lease payments at the start of the lease is substantially all of the asset's fair value. 
C)  Operating lease, because the present value of the minimum lease payments at the start of the lease is less than substantially all of the asset's fair value. 
D)  Operating lease, because the lease term is for the major part of the estimated economic life of the asset. 
E)  Finance lease, because the lease term is for the major part of the estimated economic life of the asset. 
A)  Finance lease, because the title to the property transfers to the lessee at the end of the lease term. 
B)  Finance lease, because the present value of the minimum lease payments at the start of the lease is substantially all of the asset's fair value. 
C)  Operating lease, because the present value of the minimum lease payments at the start of the lease is less than substantially all of the asset's fair value. 
D)  Operating lease, because the lease term is for the major part of the estimated economic life of the asset. 
E)  Finance lease, because the lease term is for the major part of the estimated economic life of the asset.

Which of the following is a suspect argument for leasing?

A lease where the lessee has the option to purchase the asset at the end of the lease for a set price that is set upfront in the lease contract is called a

What will Luther's balance sheet look like if they acquire the new fleet of delivery trucks using a finance lease?

A lease in which the lessee receives cash from the sale of the asset and then makes lease payments to retain the use of the asset is called a

For a lease to be attractive to both the lessee and the lessor,the gains must come from some underlying economic benefits that the leasing arrangement provides.

Generally speaking,if the asset's CCA deductions are slower than its lease payments,there are tax gains from a true tax lease if the lessor is in a higher tax bracket than the lessee.

Which of the following is a valid argument for leasing?

What is the difference between a true tax lease and a non-tax lease?

Use the table for the question(s) below. -Consider the above balance sheet for your firm (in thousands of dollars).You plan on acquiring some new equipment using a $700,000 operating lease.If you go through with the lease,what will be the change in your firm's debt-equity ratio?

Use the table for the question(s) below. Your firm is contemplating leasing some new equipment. The cash flows of either buying or leasing the equipment are shown in the table above. -If your firm's borrowing cost is 10% and the tax rate is 40%,what is the NPV of leasing versus borrowing?

What is the difference between a fixed price lease and a fair market value cap lease?

Calculate the monthly lease payments for a four-year fixed price lease that allows the lessee to buy the Bulldozer at the end of the lease for $8,000.

What is the difference between an operating lease and a finance lease?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short Term Financial Planning

Risk Management

International Corporate Finance

Mergers and Acquisitions

Corporate Governance

Filters

Exam 23: Leasing

Which of the following is a suspect argument for leasing?

A lease where the lessee has the option to purchase the asset at the end of the lease for a set price that is set upfront in the lease contract is called a

What will Luther's balance sheet look like if they acquire the new fleet of delivery trucks using a finance lease?

A lease in which the lessee receives cash from the sale of the asset and then makes lease payments to retain the use of the asset is called a

For a lease to be attractive to both the lessee and the lessor,the gains must come from some underlying economic benefits that the leasing arrangement provides.

Generally speaking,if the asset's CCA deductions are slower than its lease payments,there are tax gains from a true tax lease if the lessor is in a higher tax bracket than the lessee.

Which of the following is a valid argument for leasing?

What is the difference between a true tax lease and a non-tax lease?

Use the table for the question(s) below. -Consider the above balance sheet for your firm (in thousands of dollars).You plan on acquiring some new equipment using a $700,000 operating lease.If you go through with the lease,what will be the change in your firm's debt-equity ratio?

Use the table for the question(s) below. Your firm is contemplating leasing some new equipment. The cash flows of either buying or leasing the equipment are shown in the table above. -If your firm's borrowing cost is 10% and the tax rate is 40%,what is the NPV of leasing versus borrowing?

What is the difference between a fixed price lease and a fair market value cap lease?

Calculate the monthly lease payments for a four-year fixed price lease that allows the lessee to buy the Bulldozer at the end of the lease for $8,000.

What is the difference between an operating lease and a finance lease?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short Term Financial Planning

Risk Management

International Corporate Finance

Mergers and Acquisitions

Corporate Governance

Filters