Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 25, Problem 4PS
Lease characteristics* True or false?
- a. Lease payments are usually made at the start of each period. Thus, the first payment is usually made as soon as the lease contract is signed.
- b. A sensible motive for financial leases is that they provide off-balance-sheet financing.
- c. The cost of capital for a financial lease is the pretax interest rate the company would pay on a bank loan.
- d. An equivalent loan’s principal plus after-tax interest payments exactly match the after-tax cash flows of the lease.
- e. A financial lease should not be undertaken unless it provides more financing than the equivalent loan.
- f. It makes sense for firms that pay no taxes to lease from firms that do.
- g. Other things equal, the net tax advantage of leasing increases as nominal interest rates increase.
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Students have asked these similar questions
Which of the following statements are true?
I. Financial leasing can still provide off-balance sheet financing.
II. The cost of capital for a financial lease is the interest rate the company
would pay on a bank loan.
III. An equivalent loan's principal plus after-tax interest payments exactly
match the after-tax cash flows of the lease.
IV. It makes sense for firms that pay no taxes to lease from firms that do.
Select one:
O a. II, III and IV only
O b. I. Il and II.
O. Il and IIl only
O d. I, II, II, and IV
Please question #4 of P9.26.
Calculate the resulting gain or loss. What is the impact of the gain or loss on Bonds payable, Bond discount and Cash?
Where will the gain/loss be reported n the company's statement of cash flows?
When a lessor receives cash on a sales-type lease, which of the following accounts is decreased?
A. Lease Receivable
B. Interest Revenue: Leases
C. Unearned Interest: Leases
D. Lease Rental Revenue
Chapter 25 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 25 - Types of lease The following terms are often used...Ch. 25 - Reasons for leasing Some of the following reasons...Ch. 25 - Operating leases Explain why the following...Ch. 25 - Lease characteristics True or false? a. Lease...Ch. 25 - Lease treatment in bankruptcy What happens if a...Ch. 25 - Nonrecourse debt Lenders to leveraged leases hold...Ch. 25 - Operating leases Acme has branched out to rentals...Ch. 25 - Prob. 9PSCh. 25 - Prob. 10PSCh. 25 - Technological change and operating leases Look at...
Ch. 25 - Prob. 12PSCh. 25 - Taxes and leasing Look again at the bus lease...Ch. 25 - Taxes and leasing In Section 25-4 we showed that...Ch. 25 - Valuing financial leases A lease with a varying...Ch. 25 - Prob. 18PSCh. 25 - Valuing leases The Safety Razor Company has a...Ch. 25 - Lease treatment in bankruptcy How does the...Ch. 25 - Leveraged leases How would the lessee in Figure...Ch. 25 - Prob. 22PSCh. 25 - Valuing leases Suppose that the Greymare lease...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Which of the following is true when the mortgage loan is an amortizing loan? a. At the beginning of the term of the loan the largest part of the payment is a paydown of principal, but a payments progress a rising portion is applied to interest payments. b. Interest payments and paydown of principal remain constant during the loan. c. At the beginning of the term of the loan the largest part of the payment is interest, but a payments progress a rising portion is applied to the paydown of principal. d. Paydown of principal occurs at the end of the loan. e. None of the above.arrow_forward3. For a finance lease, the lease obligation of the lessee would be reduced periodically by a. the lease payment less the portion allocable to interest. b. the lease payment plus the interest expense for the period. c. the lease payment less depreciation expense if the lessee records depreciation. d. the lease payment less the amortization if the initial lease liability is more than the face amount, or plus the amortization if the initial lease liability is less than the face amount. e. none of the above. 4. Initial direct costs incurred by the lessor in connection with specific leasing activities as in negotiating and securing leasing arrangements in a direct finance lease would * a. result to an increase of the implicit interest rate. b. result to a decrease of the implicit interest rate. c. result to either an increase or a decrease of the implicit interest rate depending on the given facts. d. be ignored if the lease qualifies as a dealer's lease.arrow_forward3. For a finance lease, the lease obligation of the lessee would be reduced periodically by a. the lease payment less the portion allocable to interest. b. the lease payment plus the interest expense for the period. c. the lease payment less depreciation expense if the lessee records depreciation. d. the lease payment less the amortization if the initial lease liability is more than the face amount, or plus the amortization if the initial lease liability is less than the face amount. e. none of the above.arrow_forward
- When is it appropriate for the lessee to use the lessor's implicit rate to calculate the present value of the lease payments? A.when the lessee's incremental borrowing rate is lower than the lessor's rate B.whenever the lessee knows what the lessor's rate is C.when the lessor's implicit rate is lower than the lessee's incremental borrowing rate D.when the lessor's rate is higher than the lessee's incremental borrowing ratearrow_forwardWhich of the following is not included in the lease payments for the purpose of computing the lease liability? A. Fixed payments less any lease incentives receivable B. Variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date C. Guaranteed residual value D. Contingent rent based on level of salesarrow_forwardDon't give answer in imagearrow_forward
- Which of the following statements is characteristic of leases? a.If a lease is classified as an operating lease, the lessee records an asset on its statement of financial position. b.Lease agreements are not a popular form of financing the purchase of assets because leases require a large initial outlay of cash. c.If a lessor classifies a lease as a finance lease, the lessor records a lease liability on its statement of earnings. d.Accounting recognizes two types of leases—operating and finance.arrow_forwardThe following statements relate to the impact on the financial statements for operating vs. finance leases. Indicate all statements that are correct. Select one or more: a. Net Income is higher at first when a lease is classified as a finance lease. b. The right of use asset is shown at a higher amount for a finance lease. c. Operating Income is lower when a lease is classified as an operating lease. d. The lease liability is measured as the present value of future cash flows for both operating and finance leases. PreviousSave AnswersNextarrow_forward2). A landlord records the collection of a tenant's security deposit as a(n): 1. liability 2. prepaid expenses 3. contingent liability 4. contra liability 1). Which of the following statements regarding accounting for leases is true? a. If the lease term is one year or longer, a liability must be recognized. b. leases accounting rule will result in more assets and liabilities being recognized on the balance sheet c. Leasing will likely remain popular because leases do not require a large initial outlay of cash d. All of these are correct e. None of these are correct `arrow_forward
- The following statements relate to the impact on the financial statements for operating vs. finance leases. Indicate all statements that are correct. Select one or more: a. The right of use asset is shown at a higher amount for a finance lease. b. The lease liability is measured as the present value of future cash flows for both operating and finance leases. c. Net Income is higher at first when a lease is classified as a finance lease. d. Operating Income is lower when a lease is classified as an operating lease.arrow_forwardhelp me to solve it pleasearrow_forwardWhat rate is most likely used when computing the present value of the new lease liability arising from modification of terms? new implicit rate new incremental borrowing rate old incremental borrowing rate old implicit interest ratearrow_forward
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