FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 27: Leasing

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 31

Multiple Choice

Review LaterAdd Note

Review Later

Fireplaces and More is considering the purchase of a delivery truck costing $29,000. The truck will be used for 5 years and then it will be worthless. The financing rate for the purchase is 7.5 percent and the corporate tax rate is 32 percent. The firm uses straight-line depreciation. What is the break-even lease payment amount?

A) $7,148
B) $7,318
C) $7,546
D) $8,038
E) $8,254

F) A) and B)
G) A) and C)

Correct Answer

verified

Show Answer

Question 32

Multiple Choice

Review LaterAdd Note

Review Later

You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a very common practice with expensive, high-tech equipment) . The scanner costs $3.5 million and it would be depreciated straight-line to zero over 4 years. Because of radiation contamination, it will actually be completely valueless in 4 years. You can lease it for $875,000 per year for 4 years. Assume the tax rate is 33 percent. You can borrow at 10 percent before taxes. What is the net advantage to leasing from your company's standpoint?

A) $468,216
B) $491,319
C) $516,007
D) $530,468
E) $541,747

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

Correct Answer

verified

Show Answer

Question 33

Multiple Choice

Review LaterAdd Note

Cayman Productions is considering either leasing or buying some new underwater photographic equipment. The lessor will charge $26,500 a year for a 2-year lease. The purchase price is $48,600. The equipment has a 2-year life after which time it will be worthless. Cayman uses straight-line depreciation, borrows money at 8 percent, and has sufficient tax loss carryovers to offset any taxes which otherwise might be owed for the next 4 years. What is the net advantage to leasing?

You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a very common practice with expensive, high-tech equipment) . The scanner costs $2 million and it would be depreciated straight-line to zero over 4 years. Because of radiation contamination, it will actually be completely valueless in 4 years. Assume the tax rate is 33 percent. You can borrow at 6 percent before taxes. How much would the lease payment have to be in order for both the lessor and the lessee to be indifferent about the lease?

Ron leases a car from Uptown Motors and pays $225 a month as a lease payment. Which one of the following terms applies to Ron?

Val's Pizzeria is contemplating the acquisition of some new commercial ovens. The purchase price is $38,000. The equipment will be depreciated based on 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 will be worthless at the end of 4 years. The equipment can be leased for $12,500 a year. The firm can borrow money at 8 percent and has a 35 percent tax rate. What is the amount of the depreciation tax shield in year 3?

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?

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?

Heavy Equipment Rentals borrows money on a nonrecourse basis from The Financial Group to fund its purchases of construction equipment such as backhoes, graders, earth movers, etc. This equipment is then leased to contractors. The leases are classified as tax-oriented leases. Which one of the following terms best describes these lease of construction equipment?

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 $850,000 in annual pretax cost savings. The system costs $8 million and will be depreciated straight-line to zero over 5 years. Wildcat's tax rate is 31 percent, and the firm can borrow at 8 percent. Lambert Leasing Company has offered to lease the drilling equipment to Wildcat for payments of $2,040,000 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?

A firm that is very cyclical in nature and requires extra equipment only during its peak periods should consider leasing that equipment using a(n) _____ lease.

An operating lease:

If a firm does not expect to owe taxes for a few years and needs some equipment, the firm should:

J&K Enterprises is considering either leasing or buying some new equipment. The lease payments would be $3,800 a year. The purchase price is $19,900. The equipment has a 6-year life after which it is expected to have a resale value of $2,100. Your firm uses straight-line depreciation, borrows money at 11.5 percent, and has a 32 percent tax rate. What is the aftertax salvage value of the equipment?

You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a very common practice with expensive, high-tech equipment) . The scanner costs $2 million and it would be depreciated straight-line to zero over 4 years. Because of radiation contamination, it will actually be completely valueless in 4 years. You can lease it for $500,000 per year for 4 years. Assume the tax rate is 34 percent. You can borrow at 10 percent before taxes. What is the net advantage to leasing from the lessor's viewpoint?

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?

Which of the following apply to the lessee of a sale and leaseback arrangement? I. may have option to purchase asset at end of lease term II. receives cash from the sale of the asset III. maintains ownership rights IV. uses the asset

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.

If a lessor borrows money on a nonrecourse basis to purchase an asset that will be leased to another party, then:

Baxter Contractors is evaluating the lease versus the purchase of a $329,000 machine. The machine will be depreciated using MACRS over a 4-year period, after which the machine will be worthless. MACRS allows for 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent depreciation over years 1 to 4, respectively. The machine could be leased for $104,100 a year for 4 years. The firm can borrow money at 9.5 percent and has a 35 percent tax rate. The firm does not expect to pay any taxes for the next 5 years. What is the net advantage to leasing?