 |
1 | |
In a lease arrangement, the owner of the asset is: |
| | A) | The lien |
| | B) | The lessee |
| | C) | The lessor |
| | D) | The leaser |
|
|
2 | |
Which of the following statements is not true? |
| | A) | The lessee does not have to buy the equipment |
| | B) | The lessee is responsible for making the lease payments |
| | C) | The lease payments are not tax-deductible |
| | D) | The lessee gives up the depreciation tax shield |
| | E) | All of the above |
|
|
3 | |
If the lessor borrows much of the purchase price of a leased asset, the lease is called: |
| | A) | A leveraged lease |
| | B) | A sale-and-leaseback |
| | C) | A capital lease |
| | D) | A nonrecourse lease |
| | E) | None of the above |
|
|
4 | |
The primary characteristics of an operating lease are: |
| | A) | Fully amortized, lessee maintain equipment and there is no cancellation clause |
| | B) | Not fully amortized, lessor maintains equipment and there is a cancellation clause |
| | C) | Fully amortized, lessor maintain equipment and there is a cancellation clause |
| | D) | Not fully amortized, lessor maintains equipment and there is no cancellation clause |
|
|
5 | |
Which of the following are dubious reasons for leasing? |
| | A) | Leasing avoids capital expenditure controls |
| | B) | Tax shields can be used |
| | C) | The lessor is well equipped to provide efficient maintenance |
| | D) | Standardization leads to low administrative and transaction costs |
| | E) | All of the above |
|
|
6 | |
If the after-tax present value of buying equipment and using it for 6 years is $100,000, calculate the break-even after tax yearly payment (7 payments) using 6% discount rate. (Assume that the lease payments are made at the beginning of the year.) |
| | A) | $14,286 |
| | B) | $17,341 |
| | C) | $18,555 |
| | D) | $16,900 |
|
|
7 | |
Assume the initial financing provided by a lease is $100,000 and the present value of the cash outflow attributable to the lease is $90,000. Then the net value of the lease is: |
| | A) | $10,000 |
| | B) | -$10,000 |
| | C) | $190,000 |
| | D) | None of the above |
|
|
8 | |
Which of the following changes would make leasing more attractive? Assume the lessee is not paying taxes. |
| | A) | A fall in interest rates |
| | B) | A reduction in the leased asset's expected economic life |
| | C) | A general increase in the corporate tax rate |
| | D) | A switch from accelerated to straight-line to tax depreciation |
|
|
9 | |
Your firm is considering leasing a new computer. The lease lasts for 9 years. The lease calls for 10 payments of $1,000 per year with the first payment occurring immediately. The computer would cost $8,100 to buy and would be straight-line depreciated to zero salvage over 9 years. The firm can borrow at a rate of 8%. The corporate tax rate is 30%. What is the NPV of the lease? |
| | A) | -$1039.78 |
| | B) | $6,610.22 |
| | C) | $686.00 |
| | D) | $360.00 |
| | E) | None of the above |
|
|
10 | |
A financial lease is likely to be most beneficial to both parties when: |
| | A) | The lessor's tax rate is lower than the lessee's |
| | B) | The lessor's tax rate is higher than the lessee's |
| | C) | The lessor's tax rate is equal to the lessee's |
| | D) | A financial lease always has zero NPV, so both parties always break even. |
|
|
11 | |
From the lessee's point of view, which of the following is not a direct cost associated with leasing? |
| | A) | The foregone depreciation tax shield |
| | B) | The after-tax lease payment |
| | C) | The purchase price of the asset |
| | D) | Debt displacement |
|
|
12 | |
In valuing the lease versus purchase option, an irrelevant cash flow is: |
| | A) | Tax shield from depreciation |
| | B) | Investment outlay for the equipment |
| | C) | Operating cash flows associated to the new machine |
| | D) | All of the above are not irrelevant |
| | E) | All of the above are irrelevant |
|
|
13 | |
Financial leases are a source of financing. |
| | A) | True |
| | B) | False |
|
|
14 | |
In a sale and leaseback, the firm sells the asset it already owns and leases it back from the buyer. |
| | A) | True |
| | B) | False |
|
|
15 | |
Leasing is more likely to be advantageous when depreciation is accelerated. |
| | A) | True |
| | B) | False |
|