Exam 25: Leasing

Use the following information to answer the question(s)below. Assume that it is 2012 and Rearden Metal is considering the purchase of a new blast furnace costing a total of $5 million.This furnace will qualify for accelerated depreciation: 20% can be expensed immediately,followed by 32%,19.2%,11.52%,11.52% and 5.76% over the next five years.However,because of Rearden's substantial tax loss carryforwards,Rearden estimates its marginal tax rate to be only 10% over the next five years.Since Rearden will get very little tax benefit from the depreciation expense,they consider leasing the furnace instead.Suppose that Rearden and the lessor face the same 8% borrowing rate,but the lessor has a 40% marginal tax rate.Assume that the furnace is worthless after five years,the lease term is five years,and a lease would qualify as a true tax lease. -Assuming that Rearden's annual lease payments are $1.2 million,then the amount of the lease-equivalent loan is closest to:

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. -Calculate the monthly lease payments for a four-year $1.00 out lease of the bulldozer.

Use the following information to answer the question(s)below. Assume that it is 2012 and Rearden Metal is considering the purchase of a new blast furnace costing a total of $5 million.This furnace will qualify for accelerated depreciation: 20% can be expensed immediately,followed by 32%,19.2%,11.52%,11.52% and 5.76% over the next five years.However,because of Rearden's substantial tax loss carryforwards,Rearden estimates its marginal tax rate to be only 10% over the next five years.Since Rearden will get very little tax benefit from the depreciation expense,they consider leasing the furnace instead.Suppose that Rearden and the lessor face the same 8% borrowing rate,but the lessor has a 40% marginal tax rate.Assume that the furnace is worthless after five years,the lease term is five years,and a lease would qualify as a true tax lease. -Assuming that Rearden's annual lease payments are $1.2 million,and using the direct method,the NPV of leasing is closest to:

Which of the following statements regarding operating leases is FALSE?

Which of the following statements is FALSE?

Use the following information to answer the question(s)below. Assume that it is 2012 and Rearden Metal is considering the purchase of a new blast furnace costing a total of $5 million.This furnace will qualify for accelerated depreciation: 20% can be expensed immediately,followed by 32%,19.2%,11.52%,11.52% and 5.76% over the next five years.However,because of Rearden's substantial tax loss carryforwards,Rearden estimates its marginal tax rate to be only 10% over the next five years.Since Rearden will get very little tax benefit from the depreciation expense,they consider leasing the furnace instead.Suppose that Rearden and the lessor face the same 8% borrowing rate,but the lessor has a 40% marginal tax rate.Assume that the furnace is worthless after five years,the lease term is five years,and a lease would qualify as a true tax lease. -Assuming that Rearden's annual lease payments are $1.2 million,then the amount of the savings in year 0 from leasing is closest to:

Which of the following statements is FALSE?

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. -If Luther acquires the new fleet of delivery trucks using a capital lease,Luther's Debt to Equity ratio will be closest to:

A lease will be treated as a non-tax lease if it satisfies any of the following conditions,EXCEPT:

Use the information for the question(s)below. St.Martin's Hospital plans to purchase or lease a $2 million CT scanner.If purchased,the CT scanner will be depreciated on a straight-line basis over five years,after which it will be worthless.If leased,the annual lease payments will be $500,000 per year for five years.St.Martin's borrowing cost is 8%,and its tax rate is 21%. -If St.Martin purchases the CT scanner,what is the amount of the lease-equivalent loan?

Which of the following statements comparing loans and leases is FALSE?

The lease is treated as a capital lease (financial lease)for the lessee and must be listed on the firm's balance sheet if it satisfies any of the following conditions,EXCEPT:

Use the following information to answer the question(s)below. Assume that it is 2012 and Rearden Metal is considering the purchase of a new blast furnace costing a total of $5 million.This furnace will qualify for accelerated depreciation: 20% can be expensed immediately,followed by 32%,19.2%,11.52%,11.52% and 5.76% over the next five years.However,because of Rearden's substantial tax loss carryforwards,Rearden estimates its marginal tax rate to be only 10% over the next five years.Since Rearden will get very little tax benefit from the depreciation expense,they consider leasing the furnace instead.Suppose that Rearden and the lessor face the same 8% borrowing rate,but the lessor has a 40% marginal tax rate.Assume that the furnace is worthless after five years,the lease term is five years,and a lease would qualify as a true tax lease. -Assuming that Rearden's annual lease payments are $1.2 million,then Rearden Metal should:

Use the following information to answer the question(s)below. Assume that it is 2012 and Rearden Metal is considering the purchase of a new blast furnace costing a total of $5 million.This furnace will qualify for accelerated depreciation: 20% can be expensed immediately,followed by 32%,19.2%,11.52%,11.52% and 5.76% over the next five years.However,because of Rearden's substantial tax loss carryforwards,Rearden estimates its marginal tax rate to be only 10% over the next five years.Since Rearden will get very little tax benefit from the depreciation expense,they consider leasing the furnace instead.Suppose that Rearden and the lessor face the same 8% borrowing rate,but the lessor has a 40% marginal tax rate.Assume that the furnace is worthless after five years,the lease term is five years,and a lease would qualify as a true tax lease. -Assuming that Rearden's annual lease payments are $1.1 million,then the amount of the lease-equivalent loan is closest to:

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Which of the following statements regarding capital leases is FALSE?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

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. -The monthly lease payments for a four-year lease of the bulldozer are closest to: