Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 25.4, Problem 2CC
Summary Introduction
To find: The lease is less risky than borrowings, if a lease is not listed as a liability on the firm's balance sheet.
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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False
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Chapter 25 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
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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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
- What is off-balance-sheet financing? Why might a companybe interested in using off-balance-sheet financing?arrow_forwardPositive covenants specify actions a borrowing company must take as part of the indenture. These covenants eliminate the possibility that managers of financially distressed firms will pass on positive NPV projects. Question options: a) True b) Falsearrow_forwards) Which of the following is NOT one of the benefits of leasing an asset from another company? ... O Protection against obsolescence O Complete financing O Lower interest rates than normal debt O Increased likelihood of salearrow_forward
- One way that debt holders can add some "protection" to their claim on the firm's assets is to add "covenants" to their debt contract (agreement between the firm and the debt holders). Covenants spell out things the firm can and can't do, and sometimes must do, under the debt contract. One example would be a limit on the firm in how much they can pay out to equity holders such as with dividends. True Falsearrow_forwardWhich of the following is TRUE regarding the requirement for a company to exclude Short- Term Obligations from current liabilities? O It must intend to refinance the short-term obligation so that it will not require the use of working capital. O It can demonstrate the abilitly to refinance by actually refinancing the debt after the balance sheet date but before the balance sheet is issued. O It can demonstrate the ability to refinance by entering into a financing agreement. O All of the above are true.arrow_forwardWhat tools are available for solving adverse selection and moral hazard problems in debt contracts and in equity contracts?arrow_forward
- If a firm changes how they account for long-term contracts, what will be the proper accounting treatment? O This is considered a change in principle, so the firm will account for the change prospectively. O The firm will account for the change retrospectively. O This is considered a change in estimate, so the firm will account for the change prospectively. O Neither of these answer choices are correct.arrow_forwardCritique this statement: “The use of debt financing lowers the net income of the firm, and hence debt financing should be used only as a last resort.”arrow_forwardWhich of the following is/are good reason(s) for leasing? I. Taxes may be cancelled by leasing II. Leasing may increase certain types of certainty that might increase the value of the firm. III. Transaction costs will cease to exist for a lease contract than for buying the asset IV. Leasing facilitates the management of the firm's cash flows. V. Leasing provides 100 percent financing whereas loans require an initial down payment. Select one: a. I and III only b. IV only c. III only d. I and IV only e. I, III, and IV onlyarrow_forward
- What is a derivative and what is its purpose? Give an example of how a firm might use a derivative product to reduce risk in its business. Why do users of derivatives need to be careful?arrow_forwardWhich of the following is an advantage of debt financing? a. Excessive debt increases the risk of equity holders and therefore depresses share price. b. The obligation is generally fixed in terms of interest and principal payments. c. Interest and principal obligations must be paid regardless of the economic position of the firm. d. Debt agreements contain covenants.arrow_forwardFinancial Institutions have Off-Balance-Sheet acitivities mainly (Commitment Loans; Letter of Credits; Loans slold, and Derivative contracts). What are the potential advantages and risks exposed of these activities?arrow_forward
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