Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Question
Chapter 25.4, Problem 1CC
Summary Introduction
To compare: The potential gains from leasing if the lessee plans to hold the asset for only a small fraction of its useful life.
Introduction: Lease is a contract between the lessee and lessor for the use of an asset. Lessee agrees to pay a specific amount as per contract to the lessor for the use of the lessor asset.
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What are two motivations to sell an asset, even if the current value is less than what you paid for it?
How does the Leasing reduce the upfront cash needed to use an asset?
Which of the following scenarios regarding a sale and leaseback transaction would result to a loss to the seller-lessee?
Fair Value < Carrying Amount
Fair Value > Carrying Amount
Sale Price < Fair Value
Sale Price > Fair Value
Chapter 25 Solutions
Corporate Finance
Ch. 25.1 - In a perfect capital market, how is the amount of...Ch. 25.1 - Prob. 2CCCh. 25.2 - Prob. 1CCCh. 25.2 - Is it possible for a lease to be treated as an...Ch. 25.3 - Why is it inappropriate to compare leasing to...Ch. 25.3 - Prob. 2CCCh. 25.3 - Prob. 3CCCh. 25.4 - Prob. 1CCCh. 25.4 - Prob. 2CCCh. 25 - Suppose an H1200 supercomputer has a cost of...
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- Why should investors be concerned about market rents if they are purchasing a property subject to leases?arrow_forwardReasons a company may choose to lease an asset include all of the following, except for short-term need for the asset.O high risk of obsolescence.O lack of cash.O preferential tax treatment of leased assets.arrow_forwardList four potential benefits to the lessor of leasing versus selling an asset.arrow_forward
- When does a buyer-lessor recognize a financial asset from a sale and leaseback transaction? Fair Value > Carrying Amount Fair Value < Carrying Amount Sale Price > Fair Value Sale Price < Fair Valuearrow_forwardIf the residual value of a leased asset is guaranteed by a third party:arrow_forwardWhat is the motivation for a sale-leaseback of the land?arrow_forward
- Which of the following amounts would be used in calculating a lessee's right of use asset (ROU)? ) O Estimated Salvage Value O Market Value of the Asset O Unguaranteed Residual Value Bargain Purchase Optionarrow_forward1. In a sale and leaseback transaction, what is used by the buyer-lessor to depreciate the cost of the leased asset? A. Lease term B. Total Useful life C. Excess of useful life over the lease term D. Remaining useful life 2. Which of the following scenarios regarding a sale and leaseback transaction would result to a loss to the seller-lessee? A. Fair Value < Carrying Amount B. Sale Price < Fair Value C.Sale Price > Fair Value D.Fair Value > Carrying Amount 3. When does a buyer-lessor recognize a financial asset from a sale and leaseback transaction? A. Sale Price > Fair Value B. Fair Value < Carrying Amount C. Sale Price < Fair Value D. Fair Value > Carrying Amountarrow_forwardIf a company buys an intangible asset, it can only utilize the revaluation model to evaluate the asset's value later on.arrow_forward
- Assuming interest costs related to an asset qualify for interest capitalization, which of the following best describes the determination of how much interest should be capitalized? The amount capitalized should be the average between the actual and avoidable interest amounts. The amount capitalized should be the higher of the actual or avoidable interest amounts. The amount capitalized should always be the actual interest amount. The amount capitalized should be the lower of the actual or avoidable interest amounts. The amount capitalized should always be the avoidable interest amount.arrow_forwardWhat is the treatment of any gain on a subsequent increase in the fair value less cost of disposal of a noncurrent asset classified as held for sale?arrow_forwardWhat is the significance of the passive activity loss limitation (PAL) rules for real estate investors?arrow_forward
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