Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 21, Problem 4CQ
Leasing Comment on the following remarks:
- a. Leasing reduces risk and can reduce a firm’s cost of capital.
- b. Leasing provides 100 percent financing.
- c. If the tax advantages of leasing were eliminated, leasing would disappear.
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Students have asked these similar questions
Which of the following is probably a good reason for leasing instead of buying?
None of these is good reason.
O All of these are good reasons.
O Leasing may reduce transactions costs.
Taxes may be reduced by leasing.
Leasing may provide a beneficial reduction of uncertainty.
1.a) What are the issues that a finance manager considers in taking investment decision?
b) Suppose a finance manag er believes on maximization of profit, do you agree with the
philosophy? If not, what are the reasons?
c)A lessor expects some benefits from a lease contract. Explain some benefits.
3.
3
4
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 21 Solutions
Corporate Finance
Ch. 21 - Leasing vs. Borrowing What are the key differences...Ch. 21 - Leasing and Taxes Taxes are an important...Ch. 21 - Leasing and IRR What arc some of the potential...Ch. 21 - Leasing Comment on the following remarks: a....Ch. 21 - Accounting for Leases Discuss the accounting...Ch. 21 - IRS Criteria Discuss the IRS criteria for...Ch. 21 - Off- Balance Sheet Financing What is meant by the...Ch. 21 - Sale and Leaseback Why might a firm choose to...
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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
- Which one of the following is the mostly cited reason for leasing instead of buying? 100 percent financing tax reduction increased ROA circumvent expenditure controls increased uncertaintyarrow_forwardTrue or False: When a company borrows money to finance the purchase of an asset to use in its business, one of their likely goals is to earn a rate of return on that asset which is lower than the interest rate on the loan borrowing. Select one: True Falsearrow_forwardQuestion 2: State whether the following statements are true or false. 6. Hedging is an investment to reduce the risk of adverse price movements in an asset. ( ) 7. The limitation of CAPM is beta does not remain stable over time. ( ) 8. Interest on debts is an expense deducted before tax, which contributes to reducing the cost of deb. ( ) 9. When investors become more risk-averse will lead the required rate of return to increase. ( ) 10. Ahmed has a bond with a par value of OMR (1000). he sold it at OMR (1100), which means a market interest rate is equal to the coupon rate of the bond. ( )arrow_forward
- Which statement is true? Financing the property may not be beneficial to the owner in terms of yield on the equity investment O If the overall property yield equals the mortgage rate, the owner receives an additional yield on her or his investment by trading on the equity O If the overall yield on the property is less than the mortgage rate, favorable leverage occurs O When negative leverage occurs, the owner receives a cash yield on the property that is greater than if the property were not financedarrow_forwardWhich of the following statements are incorrect regarding how much debt a company should borrow? Choose all that apply. Question 9 options: A As long as the company can generate higher returns on its new projects than its borrowing interest rate, borrowing more debt will enhance the company's ROE. B Borrowing more debt will increase a company's distress level. C The bigger the company, the more it should borrow D Debt is considered a more expensive capital source.arrow_forward1. The net present value of the leasing alternative is (round to the nearest dollar) 2. The net present value of the buying alternative is (round to the nearest dollar) 3, The cost of (leasing or buying) is less, so you should (lease or buy) the equipment.arrow_forward
- 26. Which of the following are reasons why a company is involved in leasing to other companies?I. Interest revenue.II. High residual values.III. Tax incentives.IV. Guaranteed bargain purchase options. I, II, and III. I, II, IV. II, III, and IV. I, III, and IV.arrow_forwardMany businesses finance their investment activities internally. Should internal financing affect the efficiency with which the interest rate performs its functions? No, investment is profitable if the expected rate of return is greater than the rate of interest regardless of the source of funds. Yes, investment is profitable if the expected rate of return is greater than the rate of interest regardless of the source of funds. O No, because internal financing relies on a different profit calculation. Yes, because firms are usually more anxious about what happens to money that they do not have to pay back.arrow_forwardThere are two significant benefits of obtaining a loan over investing capital: Select one: a. banks are dependable providers of venture funding, and interest charges are tax deductible b. the money does not have to be repaid, and lenders usually take an active interest in their creditors C. no ownership of the company is given up or surrendered, and interest payments are tax deductible d. the investment does not have to be repaid, and no ownership of the company is surrendered O O O Oarrow_forward
- Why is the acid test ratio a more rigorous test of short-term solvency than the current ratio? A. The quick ratio eliminates prepaid expenses for the denominator.B. The quick ratio eliminates prepaid expenses for the numerator.C. The quick ratio eliminates inventories from the numerator.D. The quick ratio considers only cash and marketable investments as current assets.E. The quick ratio eliminates revenue from the numerator.arrow_forwardFinancial advisors generally recommend that their clients allocate more to higher risk–return asset classes (like equities) if their investment horizons are long. Is this advice consistent with the basic M-V model? Does adding a shortfall constraint to the M-V model make a difference? If so, how? If not, why not? Assuming investment opportunities change over time, what type of asset return behavior would justify this advice within the M-V framework?arrow_forwardWhich of the following contentions concerning the static trade off theory of capital structure are true? (i) The optimal capital structure depends upon both the value of the tax shield and on the costs of financial distress. (ii) Costs of financial distress decrease as the amount of debt in the capital structure increases. (iii) The value of the tax shield increases as the amount of debt in the capital structure decreases. (iv) The cost of financial distress does not depend upon the nature of the firm's assets. O Only (i) and (iv) are true. O Only (iv) is true. O Only (i) is true. None are true. O Only (ii) and (iii) are true.arrow_forward
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