Financing Strategy and Valid Risk Statements
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14.11 The Cable Company has $1 million of positive NPV projects it would like to take advantage of. If Cable's managers follow the historical pattern of long-term financing for U.S. industrial firms, what will their financing strategy be?
21.1 Discuss the validity of each of the following statements.
Leasing reduces risk and can reduce a firm's cost of capital.
Leasing provides 100-percent financing.
Firms that do a large amount of leasing will not do much borrowing.
If the tax advantages of leasing were eliminated, leasing would disappear.
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Solution Summary
This solution proposes a financing strategy with justifications and discusses the validity of each statement. It also explains some basic concepts of leasing for background information. All references used are included.
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14.11 The Cable Company has $1 million of positive NPV projects it would like to take advantage of. If Cable's managers follow the historical pattern of long-term financing for U.S. industrial firms, what will their financing strategy be?
Their financing strategy will be:
They will first prefer retained earnings that are the internally generated cash flow. Internally generated cash flow has dominated as a source of financing, and the proportion of internal financing has grown. Another preferable source is borrowings.
www.owlnet.rice.edu/~econ448/chang/LECTURE14.PPT
21.1 Discuss the validity of each of the following statements.
Some basics on leasing.
A lease is an agreement conveying the right to use property, plant, or equipment usually for a stated period of time. The owner of the property is referred to as the lessor, and the renter is the lessee.
If some body has taken the assets on operating lease than, in it operating lease, the lessor (or owner) transfers only the right to use the property to the lessee. At the end of the lease period, the lessee returns the property to the lessor.
"Financial Accounting Standards Board" has ruled ...
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