Question 1

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?

Accepted Answer

The opinion of the IRS revolves around t

Question 2

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 3

What are the disadvantages of leasing?

Accepted Answer

The primary disadvantage is cost. Leasin

Question 4

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 5

An operating lease is often referred to as:
I. service lease
II. maintenance lease

Accepted Answer

A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II 
A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II

Question 6

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 7

Ajax Capital has determined that the amount to be amortized on an extruder is $540,000. What annual lease payment must Ajax (lessor) require from the lessee if the required rate of return is 16%? Assume that the lease payments will be made at the beginning of each of the 7 years of the lease agreement and that the marginal tax rate is 40%.

Accepted Answer

A)  $288,140 
B)  $222,827 
C)  $115,256 
D)  $192,093 
A)  $288,140 
B)  $222,827 
C)  $115,256 
D)  $192,093

Question 8

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

Accepted Answer

A)  may be suspended 
B)  must continue to be paid by lessors 
C)  must be paid to lessors if assets are secured 
D)  may be suspended if they are "true" leases 
A)  may be suspended 
B)  must continue to be paid by lessors 
C)  must be paid to lessors if assets are secured 
D)  may be suspended if they are "true" leases

Question 9

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 10

Lessees with ____ are most likely to use leveraged leases for large transactions.

Accepted Answer

A)  low profit levels 
B)  large amounts of tax exempt income 
C)  low profits and high amounts of tax-exempt income 
D)  outlays of less than $300,000 
A)  low profit levels 
B)  large amounts of tax exempt income 
C)  low profits and high amounts of tax-exempt income 
D)  outlays of less than $300,000

Question 11

Sigma Tools will lease a computerized stamping machine from StarBanc. The machine costs $500,000 and will be depreciated on a straight-line basis to a zero book value over the next 5 years, which is also the term of the lease. The expected salvage value in 5 years is $25,000. StarBanc's marginal tax rate is 30 percent and it requires an after-tax rate of return of 12 percent on investments of this type. What annual, beginning of the year, pretax lease payment must StarBanc receive to earn the required 12 percent return?

Accepted Answer

A)  $135,133 
B)  $93,540 
C)  $94,593 
D)  $100,000 
A)  $135,133 
B)  $93,540 
C)  $94,593 
D)  $100,000

Question 12

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

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?

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

What are the disadvantages of leasing?

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

An operating lease is often referred to as: I. service lease II. maintenance lease

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

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

Disadvantages of leasing include all of the following except

Lessees with ____ are most likely to use leveraged leases for large transactions.

The sale and leaseback is advantageous to the lessee because

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

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

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-term Financing

The Management of Cash and Marketable Securities

Management of Accounts Receivable and Inventories

Financing With Derivatives

Risk Management

International Financial Management

Corporate Restructuring

Continuous Compounding and Discounting

Mutually Exclusive Investments Having Unequal Lives

Breakeven Analysis

Bond Refunding Analysis

Taxes

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Exam 19: Lease and Intermediate-term Financing

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?

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

What are the disadvantages of leasing?

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

An operating lease is often referred to as: I. service lease II. maintenance lease

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

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

Disadvantages of leasing include all of the following except

Lessees with ____ are most likely to use leveraged leases for large transactions.

The sale and leaseback is advantageous to the lessee because

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

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

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-term Financing

The Management of Cash and Marketable Securities

Management of Accounts Receivable and Inventories

Financing With Derivatives

Risk Management

International Financial Management

Corporate Restructuring

Continuous Compounding and Discounting

Mutually Exclusive Investments Having Unequal Lives

Breakeven Analysis

Bond Refunding Analysis

Taxes

Filters