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Date Submitted: 04/25/2013 11:18 AM
CHAPTER 19
LEASE FINANCING
(Difficulty: E = Easy, M = Medium, and T = Tough)
True/False
Easy:
(19.1) Types of leases Answer: a Diff: E
[i]. Many leases written today combine the features of operating and financial leases. Such leases are often called “combination leases.”
a. True
b. False
(19.1) Types of leases Answer: a Diff: E
[ii]. A sale and leaseback arrangement is a type of financial, or capital, lease.
a. True
b. False
(19.1) Operating lease Answer: a Diff: E
[iii]. Operating leases help to shift the risk of obsolescence from the user to the lessor.
a. True
b. False
(19.1) Sale and leaseback Answer: a Diff: E
[iv]. Under a sale and leaseback arrangement, the seller of the leased property is the lessee and the buyer is the lessor.
a. True
b. False
(19.2) Lease payments Answer: a Diff: E
[v]. The full amount of a lease payment is tax deductible provided the contract qualifies as a true lease under IRS guidelines.
a. True
b. False
(19.3) Off-balance sheet leasing Answer: a Diff: E
[vi]. Leasing is often referred to as off-balance sheet financing because lease payments are shown as operating expenses on a firm's income statement and, under certain conditions, leased assets and associated liabilities do not appear on the firm's balance sheet.
a. True
b. False
(19.4) Lease financing Answer: b Diff: E
[vii]. Leasing is typically a financing decision and not a capital budgeting decision. Thus, the availability of lease financing cannot affect the size of the capital budget.
a. True
b. False
(19.5) Leveraged lease Answer: b Diff: E
[viii]. A leveraged lease is more risky from the lessee’s standpoint than an unleveraged lease.
a. True
b. False
Medium:
(19.1) Synthetic leases Answer: b Diff: M
[ix]. A synthetic lease is a combination of derivative securities and asset purchases that mimic the cash flows of an operating lease.
a. True
b. False
(19.1)...