Exam 23: Leasing

Use the table for the question(s)below. Your firm is a lessor that is planning to buy some new equipment and offer it to another firm through a lease arrangement.You have calculated the above cash flows for a potential lease you might offer. -If your firm's borrowing cost is 3% and the tax rate is 45%,what is the NPV of buying and leasing?

A farmer decides to lease a new combine for the next 5 years.The purchase price of the combine is $1.2 million,and the expected residual value at the end of the lease is $430,000.If there is no risk of default and the risk-free rate is 4% APR with monthly compounding,what is the monthly lease payment for a 5-year lease in a perfect capital market?

A lease that is viewed as a rental for accounting purposes is called a(n):

Calculate the monthly lease payments for a four-year fixed price lease that allows the lessee to buy the Bulldozer at the end of the lease for $8,000.

One of the main benefits of leasing is that it allows the firm to reduce leverage through off-balance-sheet financing.

Generally speaking,if the asset's CCA deductions are slower than its lease payments,there are tax gains from a true tax lease if the lessor is in a higher tax bracket than the lessee.

A lease in which the lessor is not the manufacturer of the asset but is often an independent company that specializes in purchasing assets and leasing them to customers is called a:

Suppose your firm is planning on obtaining $750,000 of new equipment using a four-year fair market value lease,and the equipment has a remaining useful life of 7 years.If the monthly lease payments are $12,000 and the appropriate discount rate is 8% APR with monthly compounding,will the lease be classified as an operating lease or a finance lease for the lessee?

Use the table for the question(s)below. Your firm is a lessor that is planning to buy some new equipment and offer it to another firm through a lease arrangement.You have calculated the above cash flows for a potential lease you might offer. -If your firm's borrowing cost is 6% and the tax rate is 35%,what is the NPV of buying and leasing?

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

Use the table for the question(s)below. Danby Construction is considering leasing a new crane for the next 5 years.Danby has created the following table of cash flows to help with the decision: -Danby Construction has decided to lease a new crane for the next 5 years.The purchase price of the crane is $545,000,and the working life of the crane is 10 years.The crane 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 $80,000 per year for five years,and it is a true tax lease.Assume the tax savings occur at the end of each year.If Danby's borrowing cost is 9%,and its tax rate is 30%,what is the amount of the lease-equivalent loan for the crane?

Harrowfield Deliveries has decided to lease a delivery van for the next 5 years using a fixed price lease that allows them to buy the van for $18,000.The purchase price of the van is $67,000,and there is no risk that Harrowfield will default on the lease.If the risk-free rate is a 8% APR with monthly compounding,what would be the monthly lease payment for a 5-year lease in a perfect capital market?

When evaluating a true tax lease,we discount the incremental cash flows using the pre-tax borrowing rate.

If St.Martin purchases the CT scanner,what is the amount of the lease-equivalent loan?

Which of the following is a suspect argument for leasing?

A lease that gives the lessee the option to purchase the asset at its fair market value at the termination of the lease is called a:

Use the table for the question(s)below. Danby Construction is considering leasing a new crane for the next 5 years.Danby has created the following table of cash flows to help with the decision: -Danby Construction has decided to lease a new crane for the next 5 years.The purchase price of the crane is $545,000,and the working life of the crane is 10 years.The crane 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 $80,000 per year for five years,and it is a true tax lease.Assume the tax savings occur at the end of each year.If Danby's borrowing cost is 9%,and its tax rate is 30%,what is the NPV of leasing versus borrowing?

A lease that is designed to obtain specific accounting and tax treatment is called a:

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 finance lease,Luther's debt-to-equity ratio will be closest to:

In a perfect capital market,leases neither increase nor decrease firm value,but serve only to divide the firm's cash flows and risks in different ways.