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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Question
Chapter 25.4, Problem 1CC
Summary Introduction
To compare: The potential gains from leasing if the lessee plans to hold the asset for only a small fraction of its useful life.
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
Discuss the residual value of the leased asset. How does it impact the PV of rental payments computation of the Lessee and the computation of the rental payment by Lessor?
Which one of the following is not an advantage of leasing fixed asset?
a.
Repairs and maintenance are borne by the lessor
b.
Risk of loss due to obsolescence is on the lessee
c.
Lessee has access to asset without the need to purchase the asset
d.
Lessor becomes the owner of the asset
Which is not an advantage of leasing from a lessee's viewpoint?
A.The asset can be acquired without having to make a substantial down payment.
B. Leased assets are never reported on the balance sheet.
C. The risk of obsolescence may be reduced.
D. A lease may provide 100% financing.
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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Similar questions
- The lessee compares the present value of owning the equipment with the present value of leasing it. Now put yourself in the lessor’s shoes. In a few sentences, how should you analyze the decision to write or not to write the lease?arrow_forwardList four potential benefits to the lessor of leasing versus selling an asset.arrow_forwardWhat is the treatment of an unguaranteed residual value in determining thecost of sales under a sales type lease? A. The unguaranteeed residual value is ignored.B. The unguaranteed residual value is added to the cost the leased asset.C. The unguaranteed residual value is deducted from the cost of the leased asset at absolute amount.D. The unguaranteed residual value is deducted from the cost of the leased asset at present value.arrow_forward
- what is One of the advantages of leasing rather than purchasing an asset is that leasing offers flexibility and a lower cost when disposing of the asset? Explain.arrow_forwardIf the residual value of a leased asset is guaranteed by a third party:arrow_forwardDiscuss the residual value of the leased asset. How does it impact the PV of rental payments computation of the Lessee and the rental payments computation by Lessor.arrow_forward
- Which of the following statements is/are not true? Interest expense on the lease liability will increase the carrying amount of the liability. A lessee shall measure the lease liability at the present value of the lease payments that are not paid at that date, using the lessee's incremental borrowing rate. Right-of-use asset cost will include an estimates cost to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease. Group of answer choices Only statement 2. All statements are true. Only statements 2 and 3. None of the statements are true.arrow_forwardIf there is a reasonable certainly that lessee will obtain ownership by the end of the lease term, the depreciation of the leased asset is based on the Useful life of the asset or lease term, whichever is longer Useful life of the asset or lease term, whichever is shorter Useful life of the asset Lease termarrow_forwardWhich of the following statements is true? Group of answer choices The right-of-use asset is increased by prepaid lease payments and the lessee's initial direct costs, but reduced by lease incentives. The right-of-use asset is increased by prepaid lease payments, but reduced by lease incentives and the lessee's initial direct costs. The right-of-use asset is reduced by the lessee's initial direct costs, but increased by lease incentives and prepaid lease payments. The right-of-use asset is reduced by prepaid lease payments and the lessee's initial direct costs, but increased by lease incentives.arrow_forward
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