Exam 17: Payout Policy

If the lease payment for the machine in Question 53 were made in advance, starting at the beginning of the first year of the contract, what would the size of such a payment now be as an equivalent annual cost?

In a direct lease arrangement:

If an equivalent loan has the same cash flows as a lease, and results in a $1,500 higher present value, one could conclude that: present value than the lease analysis indicated, this shows:

You are the CFO of a company.You are considering leasing photocopiers from the manufacturer instead of purchasing them for $200,000.You can borrow at 9% and the corporate tax rate is 35%.The lease payment will be $50,000 for five years.At the end of the five years, the photocopiers will be worthless.Photocopiers are depreciated at 20% CCA rate.What is the NPV of the lease?

Following the time sequence described in Table 22.1, and using the information from Questions 57 through 63, what would the present value of cash flows be for leasing this $800,000 asset if the lessee's before tax cost of capital were 15%? Note that the asset is scrapped and alone in its pool at the time of disposition.

Which one of the following characteristics does not distinguish financial leases from operating leases?

What would the CCA tax shields be for Years 0 and 4, assuming these tax shields start in Year 0 and end in Year 4? Remember: CCA = 30%.

If a lease is capitalized, it has one of the following attributes

Off-balance sheet financing implies that:

Nantec Company is considering a three year financial lease.A cash flow schedule was developed that reflects the cost of the machine, CCA tax shields and after tax lease payments.The company has a 12% return requirement and a 40% tax rate. What is the value of the lease?

Provide a critique of two weak or dubious reasons for leasing.

A lessor finds a lease attractive from a tax viewpoint because he:

If one capitalizes a lease, off-balance-sheet financing is not possible.

Canada Customs and Revenue Agency is suspicious of financial leases that exhibit the following non-lease characteristic:

CumChan is a financial services firm.They need computer equipment and have decided to lease the equipment with an operating lease.They want to prevent additional debt from showing up on their balance sheet.Which of the following must be true about their lease for this to work?

Ajax Company is considering a three year financial lease.A cash flow schedule was developed that reflects the cost of the machine, CCA tax shields and after tax lease payments.The company has a 10% rate requirement and a 30% tax rate. What is the value of the lease?

Why calculate a lease versus buy decision from the perspective of the lessee? Why not instead find the present value cost of owning, and then find the present value cost of leasing, and compare which is cheaper?

Which of the following is not a normally attractive feature of an operating lease?

Which rate should you use to discount the leasing cash flows in an NPV analysis?

If a lessee has a zero tax rate, he faces no advantage of leasing over buying, since he gets no tax shelter in either case.