PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 25, Problem 17PS
Valuing financial leases A lease with a varying rental schedule is known as a structured lease. Try structuring the Greymare Bus Lines lease to increase value to the lessee while preserving the value to the lessor. Assume that Greymare does not pay tax. (Note: In practice, the tax authorities will allow some structuring of rental payments but might be unhappy with some of the schemes you devise.)
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Which is not an advantage of leasing from a lessee's viewpoint?
A.The asset can be acquired without having to make a substantial down payment.
B. Leased assets are never reported on the balance sheet.
C. The risk of obsolescence may be reduced.
D. A lease may provide 100% financing.
Leasing can be beneficial due to:
A Tax advantages for both lessors and lessees.
B
D
Guaranteed asset ownership at the end of the lease term.
Lower upfront costs compared to purchasing the asset.
Reduced maintenance and repair responsibilities for the lessee.
Which of the following typically represents an advantage of leasing over purchasing an asset with an installment note? a. Lease payments often are lower than installment payments.b. Leasing generally requires less cash upfront.c. Leasing typically offers greater flexibility and lower costs in disposing of an asset.d. All of the above are advantages of leasing.
Chapter 25 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 25 - Types of lease The following terms are often used...Ch. 25 - Reasons for leasing Some of the following reasons...Ch. 25 - Lease treatment in bankruptcy What happens if a...Ch. 25 - Lease treatment in bankruptcy How does the...Ch. 25 - Lease characteristics True or false? a. Lease...Ch. 25 - Operating leases Explain why the following...Ch. 25 - Inflation and operating leases In Problem 7, we...Ch. 25 - Technological change and operating leases Look at...Ch. 25 - Valuing financial leases Look again at Problem 7....Ch. 25 - Valuing Financial Leases Look again at the...
Ch. 25 - Valuing financial leases Look again at the bus...Ch. 25 - Valuing financial leases In Section 25-5, we...Ch. 25 - Valuing financial leases In Section 25-5, we...Ch. 25 - Valuing financial leases A lease with a varying...Ch. 25 - Valuing financial leases Nodhead College needs a...Ch. 25 - Valuing financial leases The Safety Razor Company...Ch. 25 - Nonrecourse debt Lenders to leveraged leases hold...Ch. 25 - Leveraged leases How would the lessee in Figure...Ch. 25 - Prob. 23PSCh. 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
- Identify the incorrect statement concerning lease finance. A. Companies that are short of finance can use leasing as a source of assets B. Lease payments attract tax relief C. Interest payments attract tax relief D. Finance leasing allows companies to avoid the problem of obsolescence in cases where assets are subject to rapid technological change E. Empirical research has shown that many companies use an incorrect method when evaluating lease financearrow_forwardLeasing is a popular form of financing because Group of answer choices A. the lessee may not be financially able to purchase. B. the lessor likely has experience with the equipment being leased. C. all of these options are true. D. lease provisions are generally less restrictive than a bond indenture.arrow_forwardAn increase in interest income recognized for the period on a lease agreement will have the effect of reducing the unearned revenue account for the lessor. Select one: True Falsearrow_forward
- Leasing is preferred to buying if: a. Net Advantage to Leasing is negative b. Maximum Lease Payment acceptable to Lessee is higher than the Minimum Lease payment acceptable to the Lessor c. When the NPV of buy and lease for Lessor is positive d. When Net Advantage to Leasing is positivearrow_forwardWhat would be the advantages and disadvantages of leasing assets instead of owning them? How would the financial statements be different in a leasing situation (for both operating leases and finance leases) for the lessee? What about the lessor (including all of the types)? What disclosures should be made by lessees and lessors related to future lease payments?arrow_forwardIn the lease versus buy decision, leasing is often preferable Oa. because the lessee may have greater flexibility in abandoning the project in which the leased property is used than if the lessee bought and owned the asset. Ob. because, generally, no down payment is required, and there are no indirect interest costs. Oc. because it has no effect on the firm's ability to borrow to make other investments. Od. because the lessee owns the property at the end of the least term. Oe. because lease obligations do not affect the firm's risk as seen by investors.arrow_forward
- 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_forwardWhich one of the following accurately describes an aspect /aspects of a leveraged lease? I. The lenders own the leased asset. I. The lessee pays all lease payments to the lenders. II. The lessor has a first lien on the leased asset. IV. The lessor receives the tax benefits associated with ownership of the leased asset. V. The lessee does not have to pay the remaining lease payments if the lessor defaults on the nonrecourse loan. Select one: O a. IIl and IV only O b. IV and V only O c. I, Il and IV only O d. IV only O e. I and IIl onlyarrow_forwardA lease is an agreement in which the lessor conveys the right to use an asset for an agreed period of time to the lessee in return for a payment or series of payments (IAS 17.4). Because of rapid changes in technologies, most of the production companies involve in the lease contracts rather than of purchasing new machineries. Being the accounting specialization student, how will you support this? Explain any three advantages of this contract with suitable examples.arrow_forward
- How do you think expense stops and CPI adjustments in leases affect the riskiness of the lease from the lessor’s point of view?arrow_forwardWhich 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 IVarrow_forwardWhich of the following statements is true about initial direct costs? A. Initial direct costs of a sales-type lease should be expensed at the commencement of the lease only if no selling profit or loss has been incurred. B. Initial direct costs are ownership-type costs such as insurance, maintenance, and taxes. C. Initial direct costs of an operating lease should be recorded by the lessor as a prepaid asset. D. Initial direct costs should always be debited against income by the lessor in the period of the inception of the lease.arrow_forward
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