Exam 15: Leasing and Other Equipment Finance

Aviation Ltd requires an aircraft for six years and is evaluating the following information: What annual lease payments (made in advance)would make Aviation Ltd indifferent between buying and leasing the asset? Assume that the tax treatment associated with disposal is as risky as the lease cash flows.

Shine Ltd is considering purchasing or leasing new equipment.If it purchases the equipment it will cost $500 000 and if it leases the equipment it will be required to pay six rentals of $115 000 each.The equipment can be depreciated over three years on a straight-line basis for tax purposes.The residual value is expected to be zero and the tax rate is 30 per cent.What is the incremental cash flow in Year 3 for leasing the equipment rather than buying it for Year 3? Assume that rental payments are paid at the beginning of each period.

What is the rationale for analysing a finance lease by comparing it with debt?

Cancellable short-term operating leases are an attractive option to a lessee because:

Which lease can be best defined as a finance lease where the lessor borrows most of the funds to acquire the asset?

Which of the following statements best describes sale and lease-back agreements?

Which of the following criteria is essential for a lease to be recognised as a finance lease?

The conservation of capital is not considered a potential advantage of leasing.

Aviation Ltd requires an aircraft for 6 years and is evaluating the following information: What annual lease payments (made in advance)would make Aviation indifferent between buying and leasing the asset? Assume that the tax treatment associated with disposal is riskier than the lease cash flows.