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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

Suppose Congress changed the lax laws in a way that (1) permitted equipment to be de ciated over a shorter period, (2) lowered corporate tax rates, and (3) reinstated the in ment tax credit. Discuss how each of these changes would affect the relative use of lea: versus conventional debt in the U.S. economy.

Summary Introduction

To Discuss: The ways in which each transformations would influence the comparative utilization of leasing against conventional debt in Country U's economy.

Introduction: A lease is characterized as an agreement between a lessee and a lessor for the contract of a particular asset for a particular period on payment of determined rents.

Explanation

The ways in which each transformations would influence the comparative utilization of leasing against conventional debt in Country U's economy are as follows:

  1. 1) Allowing equipment to be devalued over a lesser period builds the tax shelter assessment of leasing.
  2. 2) Bringing down corporate tax rates diminishes the tax shelter assessment of leasing; even though, lessened corporate tax rates diminish the tax deductibility of interest and the net impact is uncertain.
  3. 3) Re-establishing the investment tax credit expands the tax shield assessment of leasing...

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