Lease And Intermediate-term Financing

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Question 1
Free
Multiple Choice

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

Choose correct answer/s
A

weighted (marginal) cost of capital

B

cost of internal equity capital

C

pretax marginal cost of borrowing

D

after-tax marginal cost of borrowing

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Question 2
Free
Multiple Choice

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

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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

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Question 3
Free
Multiple Choice

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

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A

lessee

B

lessor

C

equity trustee

D

lender

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Question 4
Free
Multiple Choice

All of the following are attributes of operating leases except

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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

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Question 5
Free
Multiple Choice

All of the following are true of financial leases except

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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

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Question 6
Multiple Choice

A sale and leaseback agreement

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A
is usually an operating lease
B
is rarely used in today's leasing agreements
C
is a method of providing liquidity for the lessee
D
frequently is used for machinery financing, but rarely used in real estate
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Question 7
Multiple Choice

A primary difference between leveraged leases and other financial leases is that

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A
leveraged leases must be capitalized and shown on the lessee's balance sheet
B
the lessor in a leveraged lease is invariably the manufacturer of the leased asset
C
leveraged leases involve the use of non-recourse debt
D
unleveraged leases are usually tax motivated
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Question 8
Multiple Choice

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

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A
a 20 year lease for an asset having an economic life estimated to be 40 years
B
a lease offering a renewal option based on the asset's remaining value at the time of the renewal
C
a lease providing for a purchase option at the end of the lease period for a nominal sum
D
a leveraged lease in which the lessor contributes 40 percent equity
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Question 9
Multiple Choice

All of the following are advantages of leasing except

Choose correct answer/s
A
generally lower cost than ownership
B
leasing smoothes out expenses
C
leasing may increase a firm's liquidity
D
it provides 100% financing
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Question 10
Multiple Choice

All of the following are disadvantages of leasing except

Choose correct answer/s
A
difficulty in making property improvements
B
financial leases are non-cancelable
C
normally higher maintenance charges
D
generally higher cost than ownership
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Question 11
Multiple Choice

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

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A
buying for cash
B
borrowing to buy
C
buying with all equity funds
D
buying with before-tax dollars
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Question 12
Multiple Choice

The contract period of an operating lease tends to

Choose correct answer/s
A
be somewhat less than the economic life of an asset
B
be equal to the economic life of the asset
C
be somewhat greater than the economic life of the asset
D
recover the full cost of the asset
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Question 13
Multiple Choice

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

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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
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Question 14
Multiple Choice

The sale and leaseback is advantageous to the lessee because

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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
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Question 15
Multiple Choice

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

Choose correct answer/s
A
operating lease
B
capital lease
C
leveraged lease
D
term lease
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Question 16
Multiple Choice

Disadvantages of leasing include all of the following except

Choose correct answer/s
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
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Question 17
Multiple Choice

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

Choose correct answer/s
A
10
B
25
C
50
D
90
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Question 18
Multiple Choice

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

Choose correct answer/s
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
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Question 19
Multiple Choice

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

Choose correct answer/s
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
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Question 20
Multiple Choice

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

Choose correct answer/s
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
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