Leasing

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Introduction to Corporate Finance
Financial Statements,Taxes,and Cash Flow
Working With Financial Statements
Long-Term Financial Planning and Growth
Introduction to Valuation: The Time Value of Money
Discounted Cash Flow Valuation
Interest Rates and Bond Valuation
Stock Valuation
Net Present Value and Other Investment Criteria
Making Capital Investment Decisions
Project Analysis and Evaluation
Some Lessons From Capital Market History
Return,Risk,and the Security Market Line
Cost of Capital
Raising Capital
Financial Leverage and Capital Structure Policy
Dividends and Payout Policy
Short-Term Finance and Planning
Cash and Liquidity Management
Credit and Inventory Management
International Corporate Finance
Behavioral Finance: Implications for Financial Management
Enterprise Risk Management
Options and Corporate Finance
Option Valuation
Mergers and Acquisitions
Leasing

All Questions

Question 1

Free

Multiple Choice

Ron leases a car from Uptown Motors and pays $225 a month as a lease payment.Which one of the following terms applies to Ron?

Choose correct answer/s

lessee

lessor

guarantor

trustee

manager

Check answer

Question 2

Free

Multiple Choice

The party who owns a leased asset is called the:

Choose correct answer/s

lessee.

lessor.

guarantor.

trustee.

manager.

Check answer

Question 3

Free

Multiple Choice

Kate is leasing some equipment from Ajax Leasing for a period of one-year.Ajax pays the maintenance,taxes,and insurance costs for this equipment.The life of the equipment is 7 years.Which type of lease does Kate have?

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open

straight

operating

financial

tax-oriented

Check answer

Question 4

Free

Multiple Choice

Alfredo has a non-cancelable,five year lease on an industrial-grade sewing machine for stitching upholstery.For accounting purposes,this is considered to be a capital lease.The life of the sewing machine is five years.Alfredo must pay all taxes and insurances related to this lease.Which type of lease does Alfredo have on this sewing machine?

Choose correct answer/s

open

straight

operating

financial

tax-oriented

Check answer

Question 5

Free

Multiple Choice

A financial lease in which the lessor is the owner for tax purposes is called a(n) _____ lease.

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open

straight

operating

tax-oriented

tax-exempt

Check answer

Question 6

Multiple Choice

Heavy Equipment Rentals borrows money on a nonrecourse basis from The Financial Group to fund its purchases of construction equipment such as backhoes,graders,earth movers,etc.This equipment is then leased to contractors.The leases are classified as tax-oriented leases.Which one of the following terms best describes these lease of construction equipment?

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leveraged lease

sale and leaseback arrangement

operating lease

perpetual lease

straight lease

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Question 7

Multiple Choice

Brentwood Industries is selling its tool and die equipment to Upward Financial and then leasing that equipment from Upward for a period of ten years,which is the useful remaining life of the equipment.Which type of lease arrangement is this?

Choose correct answer/s

leveraged lease

sale and leaseback

operating lease

tax-oriented lease

straight lease

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Question 8

Multiple Choice

You are comparing a lease to a purchase.The NPV associated with this analysis is referred to as the:

Choose correct answer/s

open interest net present value.

depreciated net present value.

net advantage to leasing.

profitability index.

net value of purchasing.

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Question 9

Multiple Choice

Which one of the following statements is correct concerning the lease versus buy decision?

Choose correct answer/s

The lessor is primarily concerned with returning the asset at the end of the lease term without incurring any additional charges.

The lessor is primarily concerned about the use of the asset.

If Dell Computer became a lessor of its own computers it would be engaging in direct leasing.

A firm should always purchase, rather than lease, any asset that has a projected positive salvage value at the end of the relevant period of use.

Lessors provide a source of financing for lessees.

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Question 10

Multiple Choice

In a direct lease,the lessor:
I)is the end user of the asset.
II)rents the leased asset from the manufacturer.
III)owns the asset.
IV)is generally an independent leasing company.

Choose correct answer/s

II and III only

I and IV only

III and IV only

II, III, and IV only

I, II, III, and IV

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Question 11

Multiple Choice

An operating lease has which of the following characteristics?
I)lessee has responsibility for the maintenance and insurance
II)lease payments cover the full cost of the asset
III)economic life of the asset exceeds the lease term
IV)lessee can cancel the lease prior to the expiration date

Choose correct answer/s

I and III only

II and IV only

I and II only

III and IV only

I, II, and III only

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Question 12

Multiple Choice

A financial lease:

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is generally called a capital lease by accountants.

requires the lessor to maintain the asset.

is a partially amortized lease.

is often called a single net lease.

can generally be cancelled without penalty.

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Question 13

Multiple Choice

A leveraged lease is a:

Choose correct answer/s

lease where the lessee is the owner of the asset for tax purposes.

sale and leaseback arrangement.

type of operating lease.

lease paid with money borrowed by the lessee.

lease where the lessor borrows on a nonrecourse basis.

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Question 14

Multiple Choice

Which of the following apply to the lessee of a sale and leaseback arrangement?
I)may have option to purchase asset at end of lease term
II)receives cash from the sale of the asset
III)maintains ownership rights
IV)uses the asset

Choose correct answer/s

I and IV only

II and III only

I, II, and IV only

II, III, and IV only

I, II, III, and IV

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Question 15

Multiple Choice

A firm that is very cyclical in nature and requires extra equipment only during its peak periods should consider leasing that equipment using a(n) _____ lease.

Choose correct answer/s

operating

tax-oriented

sale and buyback

leveraged

financial

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Question 16

Multiple Choice

A financial lease:
I)is generally a fully amortized lease.
II)usually requires the lessee to insure the asset.
III)is generally cancelable without penalty if the lessee provides 30 days advance notice.
IV)is referred to as a capital lease by accountants.

Choose correct answer/s

I and III only

II and IV only

I and II only

II, III, and IV only

I, II, and IV only

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Question 17

Multiple Choice

If a firm does not expect to owe taxes for a few years and needs some equipment,the firm should:

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lease the equipment and retain the tax benefits.

lease the equipment with the lessor retaining the tax ownership of the asset.

borrow the money to buy the asset and then depreciate it using MACRS depreciation.

buy the equipment with cash and depreciate it using MACRS.

buy the equipment and depreciate it straight-line over the life of the asset.

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Question 18

Multiple Choice

If a lessor borrows money on a nonrecourse basis to purchase an asset that will be leased to another party,then:

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the lessor is responsible for the payments on the borrowed funds whether or not the lessee pays the lease payments.

the lessee must pay both the lease payment and the loan payment.

the loan is considered paid in full if the lessee discontinues making the lease payments or terminates the lease early.

the lessor is only obligated to make loan payments as long as the lessor is collecting the lease payments.

the lessor must pursue the lessee if the lessee fails to make the agreed upon lease payments.

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Question 19

Multiple Choice

If a firm enters a sale and leaseback agreement,then:
I)the lessee will benefit from an immediate cash inflow.
II)both the lessor and the lessee may benefit if the lessor can benefit more from the tax benefits of ownership than can the lessee.
III)the lease automatically becomes a nonrecourse lease.
IV)the lessee forfeits the right to repurchase the asset at a later date.

Choose correct answer/s

I and III only

II and IV only

I and II only

II and III only

III and IV only

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Question 20

Multiple Choice

An operating lease:

Choose correct answer/s

is recorded at its net present value on the balance sheet.

is recorded on the balance sheet as both an asset and a liability.

is recorded at its estimated residual balance on the balance sheet.

is reflected in the footnotes rather than on the balance sheet.

does not appear either on a financial statement or in the footnotes.

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Leasing

Ron leases a car from Uptown Motors and pays $225 a month as a lease payment.Which one of the following terms applies to Ron?

The party who owns a leased asset is called the:

Kate is leasing some equipment from Ajax Leasing for a period of one-year.Ajax pays the maintenance,taxes,and insurance costs for this equipment.The life of the equipment is 7 years.Which type of lease does Kate have?

A financial lease in which the lessor is the owner for tax purposes is called a(n) _____ lease.

Brentwood Industries is selling its tool and die equipment to Upward Financial and then leasing that equipment from Upward for a period of ten years,which is the useful remaining life of the equipment.Which type of lease arrangement is this?

You are comparing a lease to a purchase.The NPV associated with this analysis is referred to as the:

Which one of the following statements is correct concerning the lease versus buy decision?

In a direct lease,the lessor:I)is the end user of the asset.II)rents the leased asset from the manufacturer.III)owns the asset.IV)is generally an independent leasing company.

An operating lease has which of the following characteristics?I)lessee has responsibility for the maintenance and insuranceII)lease payments cover the full cost of the assetIII)economic life of the asset exceeds the lease termIV)lessee can cancel the lease prior to the expiration date

A financial lease:

A leveraged lease is a:

Which of the following apply to the lessee of a sale and leaseback arrangement?I)may have option to purchase asset at end of lease termII)receives cash from the sale of the assetIII)maintains ownership rightsIV)uses the asset

A firm that is very cyclical in nature and requires extra equipment only during its peak periods should consider leasing that equipment using a(n) _____ lease.

A financial lease:I)is generally a fully amortized lease.II)usually requires the lessee to insure the asset.III)is generally cancelable without penalty if the lessee provides 30 days advance notice.IV)is referred to as a capital lease by accountants.

If a firm does not expect to owe taxes for a few years and needs some equipment,the firm should:

If a lessor borrows money on a nonrecourse basis to purchase an asset that will be leased to another party,then:

An operating lease:

In a direct lease,the lessor:
I)is the end user of the asset.
II)rents the leased asset from the manufacturer.
III)owns the asset.
IV)is generally an independent leasing company.

An operating lease has which of the following characteristics?
I)lessee has responsibility for the maintenance and insurance
II)lease payments cover the full cost of the asset
III)economic life of the asset exceeds the lease term
IV)lessee can cancel the lease prior to the expiration date

Which of the following apply to the lessee of a sale and leaseback arrangement?
I)may have option to purchase asset at end of lease term
II)receives cash from the sale of the asset
III)maintains ownership rights
IV)uses the asset

A financial lease:
I)is generally a fully amortized lease.
II)usually requires the lessee to insure the asset.
III)is generally cancelable without penalty if the lessee provides 30 days advance notice.
IV)is referred to as a capital lease by accountants.