Which of the following statements are true?I. Financial leasing can still provide off-balance sheet financing.II. The cost of capital for a financial lease is the interest rate the companywould pay on a bank loan.III. An equivalent loan's principal plus after-tax interest payments exactlymatch the after-tax cash flows of the lease.IV. It makes sense for firms that pay no taxes to lease from firms that do.Select one:O a. II, III and IV onlyO b. I. Il and II.O. Il and IIl onlyO d. I, II, II, and IV

(I) Financing leasing is now not provide the off balance sheet items What companies used to earlier…

Answered: cost of capital for a financial lease…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter19: Lease Financing

Section: Chapter Questions

Problem 5Q

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Which of the following is nota reason why some companies lease rather than buy? A. Leasing may allow you to borrow with little or no down payment. B. Leasing can improve the balance sheet by reducing long-term debt. C. Leasing can lower income taxes. D. Leasing transfers the title to the lessee at the beginning of the lease.
Which of the following is/are good reason(s) for leasing? I. Taxes may be cancelled by leasing II. Leasing may increase certain types of certainty that might increase the value of the firm. III. Transaction costs will cease to exist for a lease contract than for buying the asset IV. Leasing facilitates the management of the firm's cash flows. V. Leasing provides 100 percent financing whereas loans require an initial down payment. Select one: a. I and III only b. IV only c. III only d. I and IV only e. I, III, and IV only
When firms enter into loan agreements with their bank, it is very common for the agreement to have a restriction on the minimum current ratio the firm has to maintain. So, it is important that the firm be aware of the effects of their decisions on the current ratio. Consider the situation of Advanced Autoparts (AAP) in 2009. The firm has total current assets of $1,780,195,300 and current liabilities of $1,369,381,000. What is the firm’s current ratio? If the firm were to expand its investment in inventory and finance the expansion by increasing accounts payable, how much could it increase its inventory without reducing the current ratio below 1.2? If the company needed to raise its current ratio to 1.5 by reducing its investment in current assets and simultaneously reducing accounts payable and short-term debt, how much would it have to reduce current assets to accomplish this goal?
Bradley Co. is expanding its operations and is in the process of selecting the method of financing this program. After some investigation, the company determines that it may (1) issue bonds and with the proceeds purchase the needed assets, or (2) lease the assets on a long-term basis. Without knowing the comparative costs involved, answer these questions: a. What are the possible advantages of leasing the assets instead of owning them? b. What are the possible disadvantages of leasing the assets instead of owning them? c. How will the balance sheet be different if Bradley Co. leases the assets rather than purchasing them?
When firms enter into loan agreements with their bank, it is very common for the agreement to have a restriction on the minimum current ratio the firm has to maintain. So, it is important that the firm be aware of the effects of their decisions on the current ratio. Consider the situation of Advanced Autoparts (AAP) in 2009. The firm had total current assets of $1,907,570,000 and current liabilities of $1,362,550,000. a. What is the firm's current ratio? b. If the firm were to expand its investment in inventory and finance the expansion by increasing accounts payable, how much could it increase its inventory without reducing the current ratio below 1.2? c. If the company needed to raise its current ratio to 1.5 by reducing its investment in current assets and simultaneously reducing accounts payable and short-term debt, how much would it have to reduce current assets to accomplish this goal? Question content area bottom Part 1 a. What is the firm's…
Bradley Co. is expanding its operations and is in the process of selecting the method of financing this program.After some investigation, the company determines that it may (1) issue bonds and with the proceeds purchase the needed assets or (2) lease the assets on a long-term basis. Without knowing the comparative costs involved, answer these questions: (a) What might be the advantages of leasing the assetsinstead of owning them?(b) What might be the disadvantages of leasing the assets instead of owning them?(c) In what way will the balance sheet be differently affected by leasing the assets as opposed to issuing bonds and purchasing the assets?
Bradley Co. is expanding its operations and is in the process of selecting the method of financing this program. After some investigation, the company determines that it may (1) issue bonds and with the proceeds purchase the needed assets or (2) lease the assets on a long-term basis. Without knowing the comparative costs involved, answer these questions: a. What might be the advantages of leasing the assets instead of owning them? b. What might be the disadvantages of leasing the assets instead of owning them? c. In what ways will the Statement of Financial Position be differently affected by leasing the assets as opposed to issuing bonds and purchasing the assets?
Which of the following is not a way in which banks lend short-term unsecured loans? a. Through a guaranteed credit line that has a commitment fee for any unused amount for the year b. Through credits cards lines with a certain credit limit c. By sending the amount earned from trust and investment products offered by the bank d. By lending a single date maturity loan to a debtor
If a firm is interested in the current cost of its debt obligations, then it can simply look at the contractual rate of interest due to lenders on those obligations. True False
Mark buys a financial asset from the DBA. This financial asset is an instrument of short term borrowing. He hasbought it because he doesn’t want to take risk and wants an assured return. This instrument is promissory note. It ishighly liquid. The instrument is also known as zero coupon bonds. On this instrument it is written T-91. Based onthe above case study, answer the following:a. Which financial asset is indicated in the above case?b. On whose behalf does the DBA issue this instrument?c. Why is this instrument called as the zero coupon bond?d. What does T-91 denote here?e. What is the minimum amount for which this instrument bond?
Given that a firm is well within its current ratio and debt ratio covenants and that interest rates are expected to decrease, would the firm prefer to use short or long-term financing for its external needs and why?
When is it appropriate for the lessee to use the lessor's implicit rate to calculate the present value of the lease payments? A.when the lessee's incremental borrowing rate is lower than the lessor's rate B.whenever the lessee knows what the lessor's rate is C.when the lessor's implicit rate is lower than the lessee's incremental borrowing rate D.when the lessor's rate is higher than the lessee's incremental borrowing rate

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cost of capital for a financial lease is the interest rat pay on a bank loan. equivalent loan's principal plus after-tax interest pa the after-tax cash flows of the lease. makes sense for firms that pay no taxes to lease fron