PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 25, Problem 2PS
Reasons for leasing Some of the following reasons for leasing are rational. Others are irrational or assume imperfect or inefficient capital markets. Which of the following reasons are the rational ones?
- a. The lessee’s, need for the leased asset is only temporary.
- b. Specialized lessors are better able to bear the risk of obsolescence.
- c. Leasing provides 100% financing and thus preserves capital.
- d. Leasing allows firms with low marginal tax rates to “sell”
depreciation tax shields. - e. Leasing increases earnings per share.
- f. Leasing reduces the transaction cost of obtaining external financing.
- g. Leasing avoids restrictions on capital expenditures.
- h. Leasing is attractive when interest payments exceed 30% of EBITDA and there are no interest tax shields from additional borrowing.
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Students have asked these similar questions
14) Good reasons for leasing include all of the following EXCEPT that:
Leasing is a source of 100% financing for an asset.
Leasing may not increase a firm's financial leverage.
Leasing may encumber fewer assets than borrowing.
Leasing transfers uncertainty about the future value of the leased asset to the lessor.
Taxes may be reduced by leasing
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.
27.
Which of the following is an advantage of captive leasing companies over the other players in the leasing market?
They are good at developing innovative contracts that help avoid accounting problems.
They provide leasing arrangements for a wider range of products than the parent company’s product line.
They have the point-of-sale advantage in finding leasing customers.
They have access to low-cost funds allowing them to purchase assets at lower cost.
Chapter 25 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 25 - Types of lease The following terms are often used...Ch. 25 - Reasons for leasing Some of the following reasons...Ch. 25 - Lease treatment in bankruptcy What happens if a...Ch. 25 - Lease treatment in bankruptcy How does the...Ch. 25 - Lease characteristics True or false? a. Lease...Ch. 25 - Operating leases Explain why the following...Ch. 25 - Inflation and operating leases In Problem 7, we...Ch. 25 - Technological change and operating leases Look at...Ch. 25 - Valuing financial leases Look again at Problem 7....Ch. 25 - Valuing Financial Leases Look again at the...
Ch. 25 - Valuing financial leases Look again at the bus...Ch. 25 - Valuing financial leases In Section 25-5, we...Ch. 25 - Valuing financial leases In Section 25-5, we...Ch. 25 - Valuing financial leases A lease with a varying...Ch. 25 - Valuing financial leases Nodhead College needs a...Ch. 25 - Valuing financial leases The Safety Razor Company...Ch. 25 - Nonrecourse debt Lenders to leveraged leases hold...Ch. 25 - Leveraged leases How would the lessee in Figure...Ch. 25 - Prob. 23PSCh. 25 - Valuing leases Suppose that the Greymare lease...
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- 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?arrow_forwardBradley 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?arrow_forwardWhich of the statement is FALSE in financial decision making? A. Large size of business needs a large capital B. Large firms may obtain their fixed assets on the lease. C. Large firms would need to construct their own building and assemble their own plantarrow_forward
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