Leasing and Borrowing Analysis
Not what you're looking for?
Discuss the validity of each of the following statements.
1. Leasing reduces risk and can reduce a firm's cost of capital.
2. Leasing provides 100-percent financing.
3. Firms that do a large amount of leasing will not do much borrowing.
4. If the tax advantages of leasing were eliminated, leasing would disappear.
Purchase this Solution
Solution Summary
The solution examines leasing and borrowing statements. The validity of the statements are determined. References are provided.
Solution Preview
Discussion of basic concepts:
Leases are contractual arrangements by which the owner of property (the "lessor") allows another person (the "lessee") to use the property for a stated period of time in exchange for cash payments or other compensation. In business, the two main types of equipment leases you would typically encounter are:
True leases - If the lessee acquires no rights to the property other than its use, then the lease is commonly referred to as a "true" (or "straight") lease. Under a true lease, the lessor is treated as the owner of the leased property for both tax and non-tax purposes, and the lessee's rental payments do not establish any equity in the property. A true lease usually gives the lessee the option to prematurely end the lease, subject to conditions that are spelled out in the agreement. Some refer to these types of leases as "operating" leases, as they are often more short term in nature and cancelable.
Financial leases - A lease that is used to effectively finance the purchase of assets is commonly referred to as a "financial" lease. The distinguishing characteristics of financial leases are that (1) the duration of the lease generally coincides with the functional or economic life of the property, (2) the lease may not be canceled, and (3) ...
Purchase this Solution
Free BrainMass Quizzes
Income Streams
In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.
Employee Orientation
Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.
Cost Concepts: Analyzing Costs in Managerial Accounting
This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.
Organizational Leadership Quiz
This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.
Basics of corporate finance
These questions will test you on your knowledge of finance.