Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 25, Problem 17PS
Valuing financial leases A lease with a varying rental schedule is known as a structured lease. Try structuring the Greymare Bus Lines lease to increase value to the lessee while preserving the value to the lessor. Assume that Greymare does not pay tax. (Note: In practice, the tax authorities will allow some structuring of rental payments but might be unhappy with some of the schemes you devise.)
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Students have asked these similar questions
Leasing is a popular form of financing because
Group of answer choices
A. the lessee may not be financially able to purchase.
B. the lessor likely has experience with the equipment being leased.
C. all of these options are true.
D. lease provisions are generally less restrictive than a bond indenture.
What would be the advantages and disadvantages of leasing assets instead of owning them? How would the financial statements be different in a leasing situation (for both operating leases and finance leases) for the lessee? What about the lessor (including all of the types)? What disclosures should be made by lessees and lessors related to future lease payments?
Leasing is preferred to buying if:
a.
Net Advantage to Leasing is negative
b.
Maximum Lease Payment acceptable to Lessee is higher than the Minimum Lease payment acceptable to the Lessor
c.
When the NPV of buy and lease for Lessor is positive
d.
When Net Advantage to Leasing is positive
Chapter 25 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 25 - Types of lease The following terms are often used...Ch. 25 - Reasons for leasing Some of the following reasons...Ch. 25 - Operating leases Explain why the following...Ch. 25 - Lease characteristics True or false? a. Lease...Ch. 25 - Lease treatment in bankruptcy What happens if a...Ch. 25 - Nonrecourse debt Lenders to leveraged leases hold...Ch. 25 - Operating leases Acme has branched out to rentals...Ch. 25 - Prob. 9PSCh. 25 - Prob. 10PSCh. 25 - Technological change and operating leases Look at...
Ch. 25 - Prob. 12PSCh. 25 - Taxes and leasing Look again at the bus lease...Ch. 25 - Taxes and leasing In Section 25-4 we showed that...Ch. 25 - Valuing financial leases A lease with a varying...Ch. 25 - Prob. 18PSCh. 25 - Valuing leases The Safety Razor Company has a...Ch. 25 - Lease treatment in bankruptcy How does the...Ch. 25 - Leveraged leases How would the lessee in Figure...Ch. 25 - Prob. 22PSCh. 25 - Valuing leases Suppose that the Greymare lease...
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- 4. Initial direct costs incurred by the lessor in connection with specific leasing activities as in negotiating and securing leasing arrangements in a direct finance lease would a. result to an increase of the implicit interest rate. b. result to a decrease of the implicit interest rate. c. result to either an increase or a decrease of the implicit interest rate depending on the given facts. d. be ignored if the lease qualifies as a dealer's lease.arrow_forwardWhich one of the following accurately describes an aspect /aspects of a leveraged lease? I. The lenders own the leased asset. I. The lessee pays all lease payments to the lenders. II. The lessor has a first lien on the leased asset. IV. The lessor receives the tax benefits associated with ownership of the leased asset. V. The lessee does not have to pay the remaining lease payments if the lessor defaults on the nonrecourse loan. Select one: O a. IIl and IV only O b. IV and V only O c. I, Il and IV only O d. IV only O e. I and IIl onlyarrow_forwardWe classify a lease as a finance lease if: Multiple Choice the present value of lease payments is less than the asset's book value. the present value of lease payments is less than the asset's fair value. the lessee obtains control of the use of the asset. the usual risks and rewards are retained by the lessor.arrow_forward
- a leasing contract, many costs to the tenant are not included in the base rent. These extra costs will amount to a large part of the total payment. What kind of lease would this be? a) Percentage lease b) Net lease c) Gross lease d) Variable leasearrow_forwardWhat are the differences between a direct-financing and a sales-type lease for a lessor? Why would a lessor provide direct-financing to a lessee? What types of organizations provide direct-financing leases?arrow_forwardDescribe and demonstrate how the lessee accounts for a finance lease and the lessor accounts for a sales-type lease with no selling profit.arrow_forward
- If the lessee and lessor use different interest rates to account for a finance/sales-type lease, then what is going wrong?arrow_forwardWhich of the following is not included in the lease payments for the purpose of computing the lease liability? A. Fixed payments less any lease incentives receivable B. Variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date C. Guaranteed residual value D. Contingent rent based on level of salesarrow_forwardWhich of the following statements is most CORRECT? Oa. A key difference between a capital lease and an operating lease is that with a capital lease, the lease payments provide the lessor with a return of the funds invested in the asset plus a return on the invested funds, whereas with an operating lease the lessor depends on the residual value to realize a full return of and on the investment. Ob. Finance leases usually have a cancelation feature. Oc. Capital, or financial, leases generally provide for maintenance by the lessor. Od. Capitalizing a lease means that the firm issues equity capital in proportion to its current capital structure, in an amount sufficient to support the lease payment obligation. Oe. The fixed charges associated with a lease can be as high as, but never greater than, the fixed payments associated with a loan.arrow_forward
- Which of the following statements is correct regarding the accounting for leases? The lessee depreciates the leased asset under a “short-term” or a “low-valued asset” lease The lessor depreciates the leased asset under a finance lease An entity can never be both a lessor and a lessee of a same leased asset When discounting lease payments both the lessor and the lessee use the interest rate implicit in the lease, unless the lessee cannot determine this ratearrow_forwardA key difference between a capital lease and an operating lease is that with a capital lease, the lease payments provide the lessor with a return of the funds invested in the asset plus a return on the invested funds, whereas with an operating lease the lessor depends on the residual value to realize a full return of and on the investment. True or false explainarrow_forwardUnder an operating lease: a) the lessee does not obtain substantially all the benefits and risks of ownership. B) the lease transaction is reported more like a purchase. C) No liability is reported on the balance sheet D) All criteria need to be met to qualify for this classification E) Only one criteria needs to be met to qualify for this classificationarrow_forward
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