Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 25.3, Problem 2CC
Summary Introduction
To describe: The discount rate should be used for the incremental lease cash flows to compare true tax lease with borrowing.
Introduction: Lease is a contract between the lessee and lessor for the use of an asset. Lessee agrees to pay a specific amount as per contract to the lessor for the use of the lessor asset.
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Students have asked these similar questions
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
Can the present value of minimum lease payments differ between the lessor and lessee? If so, how?
The discount rate influences virtually every amount reported in connection with a lease by both the lessor and the lessee. What is the lessor’s discount rate when determining the present value of lease payments? What is the lessee’s discount rate?
Chapter 25 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 25.1 - In a perfect capital market, how is the amount of...Ch. 25.1 - Prob. 2CCCh. 25.2 - Prob. 1CCCh. 25.2 - Is it possible for a lease to be treated as an...Ch. 25.3 - Why is it inappropriate to compare leasing to...Ch. 25.3 - Prob. 2CCCh. 25.3 - Prob. 3CCCh. 25.4 - Prob. 1CCCh. 25.4 - Prob. 2CCCh. 25 - Suppose an H1200 supercomputer has a cost of...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- What is the difference between a lease receivable and a net investment in the lease?arrow_forwardUnder IFRS, in computing the present value of the minimum lease payments, the lessee should:(a) use its incremental borrowing rate in all cases. (b) use either its incremental borrowing rate or the implicit rate of the lessor, whichever is higher, assuming that the implicit rate is known to the lessee. (c) use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee. (d) use the implicit rate of the lessor, unless it is impracticable to determine the implicit rate.arrow_forwardLeasing Cost Explain why the aftertax borrowing rate is the appropriate discount rate to use in lease evaluation.arrow_forward
- Leasing CostWhy the aftertax borrowing rate is the appropriate discount rate to use in lease evaluation?arrow_forwardWhat nonlease costs might be included as part of lease payments? How are they accounted for by the lessee in a finance lease when paid by the lessee? When paid by the lessor? Explain.arrow_forwardThe discount rate influences virtually every amount reported in connection with a lease by both the lessor and the lessee. What is the lessor’s discount rate when determining the present value of minimum lease payments? What is the lessee’s discount rate?arrow_forward
- Describe the effect on the lessee of a “bargain purchase option” on accounting for a finance lease transaction.arrow_forwardWhy is it appropriate to compare the cost of lease financing with that of debtfinancing?arrow_forwardIn accounting for a finance lease/sales-type lease, how are the lessee’s and lessor’s income statements affected?arrow_forward
- What discount rate should be used to evaluate a lease? Why?arrow_forwardDescribe how a "bargain buy option" affects the lessee's accounting for a finance lease deal.arrow_forwardIf the lessee and lessor use different interest rates to account for a finance/sales-type lease, then what is going wrong?arrow_forward
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