Question 1

Which of the following is a suspect argument for leasing?

Accepted Answer

A) avoiding capital expenditure controls 
B) tax differences 
C) transferring risk 
D) efficiency gains from specialization 
E) reduced resale costs 
A) avoiding capital expenditure controls 
B) tax differences 
C) transferring risk 
D) efficiency gains from specialization 
E) reduced resale costs

Question 2

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 12% and the tax rate is 25%,what is the NPV of buying and leasing?

Accepted Answer

A) $20,479 
B) $5,844 
C) -$14,694 
D) -$5,844 
E) $14,694 
A) $20,479 
B) $5,844 
C) -$14,694 
D) -$5,844 
E) $14,694

Question 3

A lease in which the lessor borrows from a bank or other lender to obtain the initial capital for the purchase of an asset and using the lease payments to pay the interest and principal on the loan is called a:

Accepted Answer

A) sales-type lease. 
B) direct lease. 
C) sale and leaseback. 
D) leveraged lease. 
E) synthetic lease. 
A) sales-type lease. 
B) direct lease. 
C) sale and leaseback. 
D) leveraged lease. 
E) synthetic lease.

Question 4

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

Accepted Answer

A) $1,870 
B) $1,825 
C) $1,750 
D) $2,115 
E) $1,945 
A) $1,870 
B) $1,825 
C) $1,750 
D) $2,115 
E) $1,945

Question 5

If a lease contract is characterized as a true lease in bankruptcy,the lessor is in a somewhat inferior position than the lender if the firm defaults.

Accepted Answer

A) True 
 B)False

Question 6

To evaluate a lease correctly,the appropriate comparison is not lease versus buy,but rather,lease versus borrow.

Accepted Answer

A) True 
 B)False

Question 7

What will Luther's balance sheet look like if they acquire the new fleet of delivery trucks using an operating lease?

Accepted Answer

If the firm acquires the fleet through a

Question 8

Use the table for the question(s)below.
  
-Consider the above balance sheet for your firm (in thousands of dollars).You plan on acquiring some new equipment using a $700,000 finance lease.If you go through with the lease,what will be the change in your firm's debt-equity ratio?

Accepted Answer

A) 0.44 
B) 0.56 
C) 0 
D) 0.80 
E) 1.69 
A) 0.44 
B) 0.56 
C) 0 
D) 0.80 
E) 1.69

Question 9

For a lease to be attractive to both the lessee and the lessor,the gains must come from some underlying economic benefits that the leasing arrangement provides.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following discount rates should be used for the lease versus borrow decision with a true tax lease?

Accepted Answer

A) the risk-free rate of interest 
B) the company's cost of borrowing 
C) the company's after-tax cost of borrowing 
D) the company's weighted average cost of capital 
E) the company's cost of equity 
A) the risk-free rate of interest 
B) the company's cost of borrowing 
C) the company's after-tax cost of borrowing 
D) the company's weighted average cost of capital 
E) the company's cost of equity

Question 11

Which of the following is considered an unfair comparison?

Accepted Answer

A) FMV lease versus $1.00-out lease 
B) $1.00-out lease versus true tax lease 
C) lease versus buy 
D) lease versus borrow 
E) buy versus borrow 
A) FMV lease versus $1.00-out lease 
B) $1.00-out lease versus true tax lease 
C) lease versus buy 
D) lease versus borrow 
E) buy versus borrow

Question 12

What is a lease-equivalent loan?

Accepted Answer

A lease-equivalent loan is the

Question 13

Use the table for the question(s)below.
  
-  Consider the above balance sheet for your firm (in thousands of dollars).You plan on acquiring some new equipment using a $400,000 finance lease.If you go through with the lease,what will be your firm's new debt-equity ratio?

Accepted Answer

A) 0.63 
B) 0.50 
C) 1.27 
D) 0 
E) 1.0 
A) 0.63 
B) 0.50 
C) 1.27 
D) 0 
E) 1.0

Question 14

Which of the following is a valid argument for leasing?

Accepted Answer

A) avoiding capital expenditure controls 
B) transferring risk 
C) preserving capital 
D) reducing leverage through off-balance-sheet financing 
E) increased resale costs 
A) avoiding capital expenditure controls 
B) transferring risk 
C) preserving capital 
D) reducing leverage through off-balance-sheet financing 
E) increased resale costs

Question 15

What is the amount of the lease-equivalent loan for the CT scanner?

Accepted Answer

A) $74,890.28 
B) $1,749,890 
C) $3,487,027 
D) $2,367,560 
E) $1,604,027 
A) $74,890.28 
B) $1,749,890 
C) $3,487,027 
D) $2,367,560 
E) $1,604,027

Question 16

Which of the following is a valid argument for leasing?

Accepted Answer

A) avoiding capital expenditure controls 
B) preserving capital 
C) reducing leverage through off-balance-sheet financing 
D) efficiency gains from specialization 
E) increased resale costs 
A) avoiding capital expenditure controls 
B) preserving capital 
C) reducing leverage through off-balance-sheet financing 
D) efficiency gains from specialization 
E) increased resale costs

Question 17

Use the table for the question(s)below.
  
-  Consider the above balance sheet for your firm (in thousands of dollars).You plan on acquiring some new equipment using a $950,000 finance lease.If you go through with the lease,what will be the change in your firm's debt-equity ratio?

Accepted Answer

A) 0.44 
B) 0.20 
C) 0 
D) 0.58 
E) 0.38 
A) 0.44 
B) 0.20 
C) 0 
D) 0.58 
E) 0.38

Question 18

Toronto Trucking has decided to lease a long-haul trailer for the next 6 years using a $1.00 out lease.The purchase price of the trailer is $189,000.If the risk-free rate is a 4% APR with monthly compounding,what would be the monthly lease payment for a 6-year lease?

Accepted Answer

A) $2,950.79 
B) $2,947.10 
C) $2,956.93 
D) $2,941.16 
E) $2,913.55 
A) $2,950.79 
B) $2,947.10 
C) $2,956.93 
D) $2,941.16 
E) $2,913.55

Question 19

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 12% and the tax rate is 45%,what is the NPV of buying and leasing?

Accepted Answer

A) $5,422 
B) $14,694 
C) -$14,694 
D) $15,069 
E) $1,960 
A) $5,422 
B) $14,694 
C) -$14,694 
D) $15,069 
E) $1,960

Question 20

Most leases involve a large upfront payment.

Accepted Answer

A) True 
 B)False

Exam 23: Leasing

Which of the following is a suspect argument for leasing?

A lease in which the lessor borrows from a bank or other lender to obtain the initial capital for the purchase of an asset and using the lease payments to pay the interest and principal on the loan is called a:

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

If a lease contract is characterized as a true lease in bankruptcy,the lessor is in a somewhat inferior position than the lender if the firm defaults.

To evaluate a lease correctly,the appropriate comparison is not lease versus buy,but rather,lease versus borrow.

What will Luther's balance sheet look like if they acquire the new fleet of delivery trucks using an operating lease?

Use the table for the question(s)below. -Consider the above balance sheet for your firm (in thousands of dollars).You plan on acquiring some new equipment using a $700,000 finance lease.If you go through with the lease,what will be the change in your firm's debt-equity ratio?

For a lease to be attractive to both the lessee and the lessor,the gains must come from some underlying economic benefits that the leasing arrangement provides.

Which of the following discount rates should be used for the lease versus borrow decision with a true tax lease?

Which of the following is considered an unfair comparison?

What is a lease-equivalent loan?

Use the table for the question(s)below. - Consider the above balance sheet for your firm (in thousands of dollars).You plan on acquiring some new equipment using a $400,000 finance lease.If you go through with the lease,what will be your firm's new debt-equity ratio?

Which of the following is a valid argument for leasing?

What is the amount of the lease-equivalent loan for the CT scanner?

Which of the following is a valid argument for leasing?

Use the table for the question(s)below. - Consider the above balance sheet for your firm (in thousands of dollars).You plan on acquiring some new equipment using a $950,000 finance lease.If you go through with the lease,what will be the change in your firm's debt-equity ratio?

Toronto Trucking has decided to lease a long-haul trailer for the next 6 years using a $1.00 out lease.The purchase price of the trailer is $189,000.If the risk-free rate is a 4% APR with monthly compounding,what would be the monthly lease payment for a 6-year lease?

Most leases involve a large upfront payment.

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Risk Management

International Corporate Finance

Mergers and Acquisitions

Corporate Governance

Filters