FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 27: Leasing

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 1

Multiple Choice

Review LaterAdd Note

Review Later

-Charleston Marina is considering either leasing or buying some new equipment it needs for repairing boats.The lease payments would be $7,200 a year for 3 years.The purchase price is $20,800.The equipment has a 3-year life and then is expected to have a resale value of $4,700.The firm uses straight-line depreciation,borrows money at 8.5 percent,and has a 34 percent tax rate.What is the net advantage to leasing?

A) -$1,507
B) -$1,222
C) -$975
D) $408
E) $611

F) All of the above
G) A) and B)

Correct Answer

verified

Show Answer

Question 2

Multiple Choice

Review LaterAdd Note

Review Later

Deep Mining,Inc. ,is contemplating the acquisition of some new equipment for controlling coal dust that costs $174,000.The firm uses MACRS depreciation which allows for 33.33 percent,44.44 percent,14.82 percent,and 7.41 percent depreciation over years 1 to 4,respectively.After that time,the equipment will be worthless.The equipment can be leased for $53,100 a year for 4 years.The firm can borrow money at 11.5 percent and has a 36 percent tax rate.What is the net advantage to leasing?

A) $5,225
B) $5,607
C) $6,611
D) $6,847
E) $6,950

F) B) and E)
G) B) and C)

Correct Answer

verified

Show Answer

Question 3

Multiple Choice

Review LaterAdd Note

Daily Enterprises is contemplating the acquisition of some new equipment.The purchase price is $46,000.The company expects to sell the equipment at the end of year 4 for $2,500.The firm uses MACRS depreciation which allows for 33.33 percent,44.44 percent,14.82 percent,and 7.41 percent depreciation over years 1 to 4,respectively.The equipment can be leased for $12,300 a year for 4 years.The firm can borrow money at 7.5 percent and has a 35 percent tax rate.What is the incremental annual cash flow for year 4 if the company decides to lease the equipment rather than purchase it?

Which one of the following correctly states one of the conditions established by the IRS for a lease to be considered valid for tax purposes?

A financial lease:

Jane's Floor Care is contemplating the acquisition of some new equipment for refinishing wood floors.The purchase price is $74,000.The firm uses MACRS depreciation which allows for 33.33 percent,44.44 percent,14.82 percent,and 7.41 percent depreciation over years 1 to 4,respectively.The equipment can be leased for $24,600 a year.The firm can borrow money at 9.5 percent and has a 34 percent tax rate.What is the amount of the depreciation tax shield in year 4?

The Wildcat Oil Company is trying to decide whether to lease or buy a new computer-assisted drilling system for its oil exploration business.Management has decided that it must use the system to stay competitive;it will provide $550,000 in annual pretax cost savings.The system costs $3 million and will be depreciated straight-line to zero over 4 years.It is estimated that the equipment will have an aftertax residual value of $500,000 at then end of the lease.Wildcat's tax rate is 31 percent,and the firm can borrow at 10 percent.Lambert Leasing Company has offered to lease the drilling equipment to Wildcat for payments of $940,000 per year.Lambert's policy is to require its lessees to make payments at the start of the year.What is the maximum lease payment that would be acceptable to the company?

Cool Treats is considering either leasing or buying a new freezer unit.The lessor will charge $11,900 a year for a 2-year lease.The purchase price is $32,000.The freezer has a 2-year life after which time it is expected to have a resale value of $9,000.Cool Treats uses straight-line depreciation,borrows money at 8 percent,and has sufficient tax loss carryovers to offset any potential taxable income the firm might have over the next 5 years.What is the net advantage to leasing?

You are comparing a lease to a purchase.The NPV associated with this analysis is referred to as the:

The most cited reason why firms enter into lease agreements is to:

The IRS will disallow any lease that:

The party who owns a leased asset is called the:

Green Valley Farms is considering either leasing or buying some new farm equipment.The lessor will charge $27,500 a year for a 5-year lease.The purchase price is $136,000.The equipment has a 5-year life after which time it will be worthless.Green Valley Farms uses straight-line depreciation,has a 32 percent tax rate,borrows money at 10 percent,and has sufficient tax loss carryovers to offset any potential taxable income the firm might have over the next five years.What is the net advantage to leasing?

A financial lease: I.is generally a fully amortized lease. II.usually requires the lessee to insure the asset. III.is generally cancelable without penalty if the lessee provides 30 days advance notice. IV.is referred to as a capital lease by accountants.

An operating lease:

Kate is leasing some equipment from Ajax Leasing for a period of one-year.Ajax pays the maintenance,taxes,and insurance costs for this equipment.The life of the equipment is 7 years.Which type of lease does Kate have?

A firm borrows money at 8.75 percent,uses straight-line depreciation,and has a 37 percent tax rate.The firm's break-even aftertax annual lease payment on a machine is $16,511.How much will the firm have to pay annually to the lessor to lease this machine?

Brentwood Industries is selling its tool and die equipment to Upward Financial and then leasing that equipment from Upward for a period of ten years,which is the useful remaining life of the equipment.Which type of lease arrangement is this?

What are some "good" reasons for opting to lease rather than purchase an asset?

Cross Town Express is contemplating the acquisition of some new equipment.The purchase price is $74,000.The equipment would be depreciated using MACRS depreciation which allows for 33.33 percent,44.44 percent,14.82 percent,and 7.41 percent depreciation over years 1 to 4,respectively.The equipment would be worthless after that time.The equipment can be leased for $19,100 a year for 4 years.The firm can borrow money at 9.5 percent and has a 28 percent tax rate.What is the incremental annual cash flow for year 3 if the company decides to lease the equipment rather than purchase it?