Exam 23: Leasing

Explain the reduced resale costs argument for leasing.

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%. -In the chapter,the lease versus buy decision was called an unfair comparison.Why? What is the correct comparison?

What is the difference between a security interest and a true lease in bankruptcy?

Which of the following is considered an unfair comparison?

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

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 7% and the tax rate is 35%,what is the amount of the lease-equivalent loan for the new equipment?