Test bank 21
Câu hỏi số 1
In a lease arrangement, the owner of the asset is
● A. the lesser.
● B. the lessee.
● C. the lessor.
● D. the leaser.
● E. None of these.

Câu hỏi số 2
In a lease arrangement, the user of the asset is:
● A. the lesser.
● B. the lessee.
● C. the lessor.
● D. the leaser.
● E. None of these.

Câu hỏi số 3
Which of the following would not be a characteristic of a financial lease?
● A. They are not usually fully amortized.
● B. They usually do not have maintenance necessary for the leased assets.
● C. They usually do not include a cancellation option.
● D. The lessee usually has the right to renew the lease at expiration.
● E. All of these are characteristics of financial leases.

Câu hỏi số 4
An independent leasing company supplies ___________ leases versus the manufacturer who
supplies ________________ leases.


● A. leveraged; direct

● B. sales and leaseback; sales-type
● C. capital; sales-type
● D. direct; sales-type
● E. None of these

Câu hỏi số 5
Which of the following is not a financial lease?
● A. A leveraged lease
● B. An operating lease
● C. A sale-and-leaseback
● D. Both a leveraged lease and an operating lease.
● E. None of these.

Câu hỏi số 6
If the lessor borrows much of the purchase price of a leased asset, the lease is called:
● A. a leveraged lease.
● B. a sale-and-leaseback.
● C. a capital lease.
● D. a non recourse lease.
● E. None of these.

Câu hỏi số 7
An operating lease's primary characteristics are:
● A. fully amortized, lessee maintains equipment and there is no cancellation clause.
● B. not fully amortized, lessor maintains equipment and there is a cancellation clause.
● C. fully amortized, lessor maintains equipment and there is a cancellation clause.
● D. not fully amortized, lessor maintains equipment and there is not cancellation clause.
● E. fully amortized, lessee maintains equipment and lessee can acquire assets at end of lease for
fairmarket value.



Câu hỏi số 8
If a lease is for 35 years, it is regarded as a:
● A. financial lease.
● B. operating lease.
● C. capital lease.
● D. conditional sale.
● E. sale and leaseback.

Câu hỏi số 9
The city of Plainview sold some buildings and used the proceeds to improve its financial position.
The city then leased the buildings back in order to continue to use these facilities. This is an
example of:
● A. an operating lease.
● B. a short-term lease.
● C. a sale and leaseback.
● D. a fully amortized lease.
● E. None of these.

Câu hỏi số 10
A financial lease has the following as its primary characteristics:
● A. is fully amortized, lessee maintains equipment and there is no renewal clause and no
cancellation clause.
● B. is not fully amortized, lessor maintains equipment and there is a renewal clause but no
cancellation clause.
● C. is fully amortized, lessor maintains equipment and there is a renewal clause and a no
cancellation clause.
● D. is not fully amortized, lessor maintains equipment and there is a renewal clause.
● E. is fully amortized, lessee maintains equipment and there is a renewal clause and a no
cancellationclause.


Câu hỏi số 11


An advantage of leasing is that the lessor does not own the asset and can cancel:
● A. only financial leases.
● B. only operating leases.
● C. only capital leases.
● D. any kind of leases anytime.
● E. None of these.

Câu hỏi số 12
A leveraged lease typically involves a non-recourse loan in which:
● A. the lessee's payments go directly to the lender in case of default.
● B. the lessor is not obligated in case of default.
● C. the third party lenders have a first lien on the assets.
● D. All of these.
● E. None of these.

Câu hỏi số 13
For accounting purposes, which of the following conditions would automatically cause a lease to be
a capital lease?
● A. The lessee can purchase the asset below fair market value at the end of the lease.
● B. The lease transfers ownership of the asset to the lessee by the end of the lease.
● C. The lease term is more than 75% of the asset's economic life.
● D. The present value of the lease payments is more than 90% of the asset's market value at lease
inception.
● E. All of these would lead to the lease being considered a capital lease.

Câu hỏi số 14

Capital leases would show up on the balance sheet of the firm in which manner for a six year
machinery lease worth $700,000?
● A. Capital leases do not have to be put on the balance sheet; only financial leases do.
● B. Asset - Machinery $700,000; Liabilities - Long Term debt $700,000 because of debt
displacement.


● C. Asset - Assets under Capital Lease $700,000; Liabilities - Obligations under Capital
Lease $700,000.
● D. Assets - Assets under Capital Lease $700,000; Liabilities - Long Term Debt $700,000 because
of debt displacement.
● E. None of these.

Câu hỏi số 15
Prior to FASB 13, "Accounting for Leases", lease activity was only reported in financial footnotes.
This off-balance-sheet-financing made firms with:
● A. capital leases appear financially stronger than firms that used debt to purchase the asset.
● B. operating leases appear financially stronger than firms that used debt to purchase the asset.
● C. leases of any type appear financially stronger than firms that used debt to purchase the asset.
● D. All of these.
● E. None of these.

Câu hỏi số 16
Which of the following is not an implication of FASB 13, Accounting for Leases?
● A. FASB 13 requires that the PV of the lease payments appear on the right hand side of the
balance sheet.
● B. FASB 13 requires that the present value of the asset appear on the left hand side of the balance
sheet.
● C. FASB 13 allows for off-balance-sheet financing for operating leases.
● D. All of these.

● E. None of these.

Câu hỏi số 17
The reason the IRS is most concerned about lease contracts is:
●
●
●
●
●

A. firms that lease generally pay no taxes.
B. that leasing usually leads to bankruptcy.
C. that leases can be set up solely to avoid taxes.
D. because leasing leads to off-balance-sheet-financing.
E. All of these.


Câu hỏi số 18
A lease with high payments early in its life which then decline to termination would:
●
●
●
●
●

A. provide greater cash flow to the lessee in the beginning years.
B. be evidence of tax avoidance and not acceptable to the IRS.
C. be qualified as a capital lease under FASB 13.
D. provide a lower residual value and thus ensure a bargain-purchase price option.
E. All of these.


Câu hỏi số 19
In valuing the lease versus purchase option, the relevant cash flows are the:
● A. tax shield from depreciation.
● B. investment outlay for the equipment.
● C. a decrease in the firm's operating costs that are not affected by leasing.
● D. All of these are relevant.
● E. None of these are relevant.

Câu hỏi số 20
The appropriate discount rate for valuing a financial lease is:
● A. the firm's after-tax weighted average cost of capital.
● B. the after-tax required return on assets of risks similar to the leased asset.
● C. the after-tax cost of secured borrowing.
● D. Either the firm's after-tax weighted average cost of capital or the after-tax required return on
assets of risks similar to the leased asset.
● E. All of these.

Câu hỏi số 21
The WACC is not used in the lease versus purchase decision because:
● A. the WACC was used in the decision to acquire the asset, this is only a financing decision.
● B. the WACC is used only when a lease alone is considered and not a lease versus purchase.
● C. the WACC does not include the lease cost of capital and therefore should not be used.
● D. tax rates of the lessor may be different than the lessee and therefore the WACC is incorrect.
● E. when a bank arranges a lease they do not consider the lessee's cost of capital.


Câu hỏi số 22
Firms that use financial leases must consider their debt-to-equity ratios as inadequate measures of
financial leverage because:

● A. lenders are concerned about the firm's total liabilities and related cash flow.
● B. debt displacement occurs with leasing.
● C. less future debt can be raised for a growing firm when a lease is used.
● D. All of these.
● E. None of these.

Câu hỏi số 23
______ would be evidence the lease is being used to avoid taxes and not a legitimate business
purpose.
●
●
●
●
●

A. Early balloon payments
B. Late balloon payments
C. Capitalizing a lease
D. Transfer of lease payments to a second owner
E. None of these

Câu hỏi số 24
Debt displacement is associated with leases because:
A. all assets not purchased with equity use debt financing.
B. debt is always a cheaper source of financing and preferred to equity financing.
C. FASB 13 and the IRS mandate debt displacement.
D. lease financing is all debt and causes an imbalance in the optimal debt to equity ratio which
reduces future debt financing.
E. None of these.


Câu hỏi số 25
The price or lease payment that the lessee sets as their bound is known as:
●
●
●

A. the present value of the tax shields.
B. the reservation payment, LMIN.
C. the present value of operating savings.


●
●

D. the reservation payment, LMAX.
E. None of these.

Câu hỏi số 26
Which of the following is probably not a good reason for leasing instead of buying?
● A. Taxes may be reduced by leasing.
● B. Leasing may reduce transactions costs.
● C. Leasing may provide a beneficial reduction of uncertainty.
● D. All of these are good reasons.
● E. All of these are not good reasons.

Câu hỏi số 27
Which of the following is probably a good reason for leasing instead of buying?
● A. Leasing provides 100% financing.
● B. Leasing is not considered a form of debt financing.
● C. Leasing may increase EPS relative to buying.

● D. All of these are good reasons.
● E. None of these is a good reason.

Câu hỏi số 28
Some assets are leased more than others because:
●
●
●
●
●

A. the value of the asset under a lease is not highly affected by term of use or maintenance
decisions.
B. a lease may be used to fool clients into "buying" high priced assets above market value.
C. leasing allows sellers to attract clients with low prices as the basis for setting the contract.
D. Both the value of the asset under a lease is not highly affected by term of use or maintenance
decisions; and a lease may be used to fool clients into "buying" high priced assets above market
value.
E. Both the value of the asset under a lease is not highly affected by term of use or
maintenancedecisions; and leasing allows sellers to attract clients with low prices as the
basis for setting the contract.

Câu hỏi số 29
To meet IRS guidelines for leasing, the lease should:


●
●
●
●

●

A. limit the lessee's right to issue debt or pay dividends while the lease is operative.
B. not limit the lessee's right to issue debt or pay dividends while the lease is operative.
C. pay a very high return to the lessor.
D. transfer ownership of the asset at the end of the lease at below fair market value.
E. be over 30 years.

Câu hỏi số 30
Your firm is considering leasing a new computer. The lease lasts for 9 years. The lease calls for 10
payments of $1,000 per year with the first payment occurring immediately. The computer would
cost $7,650 to buy and would be straight-line depreciated to a zero salvage value over 9 years. The
actual salvage value is negligible because of technological obsolescence. The firm can borrow at a
rate of 8%. The corporate tax rate is 30%.What is the after-tax cash flow from leasing relative to
the after-tax cash flow from purchasing in years 1-9?
● A. -$255
● B. -$955
● C. -$1,295
● D. -$1,850
● E. None of these
$-1,000(1 - .30) - ($7,650/9)(.30) = $-700 - $255 = $-955

Câu hỏi số 31
Your firm is considering leasing a new computer. The lease lasts for 9 years. The lease calls for 10
payments of $1,000 per year with the first payment occurring immediately. The computer would
cost $7,650 to buy and would be straight-line depreciated to a zero salvage value over 9 years. The
actual salvage value is negligible because of technological obsolescence. The firm can borrow at a
rate of 8%. The corporate tax rate is 30%.What is the after-tax cash flow from leasing relative to
the after-tax cash flow from purchasing in year 0?
● A. -$4,865

● B. -$700
● C. $6,950
● D. $7,650
● E. None of these
$-1,000(1 - .30) - $-7,650 = $6,950
Câu hỏi số 32


Your firm is considering leasing a new computer. The lease lasts for 9 years. The lease calls for 10
payments of $1,000 per year with the first payment occurring immediately. The computer would
cost $7,650 to buy and would be straight-line depreciated to a zero salvage value over 9 years. The
actual salvage value is negligible because of technological obsolescence. The firm can borrow at a
rate of 8%. The corporate tax rate is 30%.What is the NPV of the lease relative to the purchase?
● A. $-1,039.78
● B. $339.78
● C. $360.22
● D. $6,610.22
● E. None of these
NPV = $6,950 - $955PVIFA.056,9 = $6,950-$6,610.22 = $339.78
R(B) aftertax = 0.08 x (1-0.3) = 0.056
Câu hỏi số 33
Your firm is considering leasing a new computer. The lease lasts for 9 years. The lease calls for 10
payments of $1,000 per year with the first payment occurring immediately. The computer would
cost $7,650 to buy and would be straight-line depreciated to a zero salvage value over 9 years. The
actual salvage value is negligible because of technological obsolescence. The firm can borrow at a
rate of 8%. The corporate tax rate is 30%.What would the after-tax cash flow in year 9 be if the
asset had a residual value of $500 (ignoring any possible risk differences)?
● A. -$605
● B. -$955
● C. -$1,455

● D. -$1,305
● E. None of these
CF9 - RV(1 - TC) = $-955 - $500(1 - .3) = $-955 - $350 = $-1,305
Câu hỏi số 34
Your firm is considering leasing a new computer. The lease lasts for 9 years. The lease calls for 10
payments of $1,000 per year with the first payment occurring immediately. The computer would
cost $7,650 to buy and would be straight-line depreciated to a zero salvage value over 9 years. The
actual salvage value is negligible because of technological obsolescence. The firm can borrow at a
rate of 8%. The corporate tax rate is 30%.This lease would be classified as a(n):
● A. operating lease because the asset will be obsolete.
● B. operating lease because there is no amortization.
● C. leveraged lease because it is being financed.
● D. capital lease because the lease life is greater than 75% of the economic life.


● E. sale and leaseback because the company gets full use of the asset.

Câu hỏi số 35
Your firm is considering leasing a new robotic milling control system. The lease lasts for 5 years.
The lease calls for 6 payments of $300,000 per year with the first payment occurring at lease
inception. The system would cost $1,050,000 to buy and would be straight-line depreciated to a zero
salvage value. The actual salvage value is zero. The firm can borrow at 8%, and the corporate tax
rate is 34%.What is the appropriate discount rate for valuing the lease?
● A. 2.72%
● B. 5.28%
● C. 8.00%
● D. 12.12%
● E. None of these.
After-tax discount rate = .08(1 - .34) = .0528 = 5.28%
Câu hỏi số 36

Your firm is considering leasing a new robotic milling control system. The lease lasts for 5 years.
The lease calls for 6 payments of $300,000 per year with the first payment occurring at lease
inception. The system would cost $1,050,000 to buy and would be straight-line depreciated to a zero
salvage value. The actual salvage value is zero. The firm can borrow at 8%, and the corporate tax
rate is 34%.What is the after-tax cash flow from leasing in year 0?
● A. $300,000
● B. $495,000
● C. $852,000
● D. $948,000
● E. None of these
$1,050,000 - $300,000(1 - .34) = $1,050,000 - $198,000 = $852,000
Câu hỏi số 37
Your firm is considering leasing a new robotic milling control system. The lease lasts for 5 years.
The lease calls for 6 payments of $300,000 per year with the first payment occurring at lease
inception. The system would cost $1,050,000 to buy and would be straight-line depreciated to a zero
salvage value. The actual salvage value is zero. The firm can borrow at 8%, and the corporate tax
rate is 34%.What is the after-tax cash flow in years 1 through 5?
● A. -$126,600
● B. -$198,000


● C. -$269,400
● D. -$287,250
● E. None of these
CF1 = $-300,000(1 - .34) - .34($1,050,000/5) = $-198,000 - $71,400 = $-269,400
Câu hỏi số 38
Your firm is considering leasing a new robotic milling control system. The lease lasts for 5 years.
The lease calls for 6 payments of $300,000 per year with the first payment occurring at lease
inception. The system would cost $1,050,000 to buy and would be straight-line depreciated to a zero
salvage value. The actual salvage value is zero. The firm can borrow at 8%, and the corporate tax

rate is 34%.What is the NPV of the lease?
● A. -$111,690
● B. -$295,040
● C. -$305,388
● D. -$309,690
● E. None of these
NPV = $852,000 - $269,400(PVIFA.0528,5 ) = $852,000 - $269,400(4.2962) = $852,000 - $1,157,388 =
$-305,388
Câu hỏi số 39
Your firm is considering leasing a new robotic milling control system. The lease lasts for 5 years.
The lease calls for 6 payments of $300,000 per year with the first payment occurring at lease
inception. The system would cost $1,050,000 to buy and would be straight-line depreciated to a zero
salvage value. The actual salvage value is zero. The firm can borrow at 8%, and the corporate tax
rate is 34%.What is the maximum lease payment that you would be willing to make?
● A. $170,655
● B. $175,000
● C. $187,842
● LMAX = $1,050,000/PVIFAD.08,6 = $1,050,000/4.9927 = $210,307
● E. None of these
Câu hỏi số 40
Your firm is considering leasing a new robotic milling control system. The lease lasts for 5 years.
The lease calls for 6 payments of $300,000 per year with the first payment occurring at lease
inception. The system would cost $1,050,000 to buy and would be straight-line depreciated to a zero
salvage value. The actual salvage value is zero. The firm can borrow at 8%, and the corporate tax
rate is 34%.What is the minimum lease payment that the lessor would be willing to accept?
● A. $161,000


● B. $176,995
● C. $217,645

● D. $237,083
● E. None of these
Câu hỏi số 41
Your firm is considering leasing a radiographic x-ray machine. The lease lasts for 3 years. The lease
calls for 4 payments of $25,000 per year with the first payment occurring immediately.
Thecomputer would cost $140,000 to buy and would be straight-line depreciated to a zero salvage
value over 3 years. The actual salvage value is negligible. The firm can borrow at a rate of 12%.
The corporate tax rate is 40%.What is the after-tax cash flow from leasing relative to the after-tax
cash flow from purchasing in years 1-3?
● A. -$15,000
● B. -$3,667
● C. -$2,750
● D. -$1,500
● E. None of these

Câu hỏi số 42
Your firm is considering leasing a radiographic x-ray machine. The lease lasts for 3 years. The lease
calls for 4 payments of $25,000 per year with the first payment occurring immediately. The
computer would cost $140,000 to buy and would be straight-line depreciated to a zero salvage value
over 3 years. The actual salvage value is negligible. The firm can borrow at a rate of 12%. The
corporate tax rate is 40%.What is the after-tax cash flow from leasing relative to the after-tax cash
flow from purchasing in year 0?
● A. -$125,000
● B. -$15,000
● C. $15,000
● D. $125,000
● E. None of these
$-15,000 - $-140,000 = $125,000
Câu hỏi số 43
Your firm is considering leasing a radiographic x-ray machine. The lease lasts for 3 years. The lease

calls for 4 payments of $25,000 per year with the first payment occurring immediately. The
computer would cost $140,000 to buy and would be straight-line depreciated to a zero salvage value


over 3 years. The actual salvage value is negligible. The firm can borrow at a rate of 12%. The
corporate tax rate is 40%.What is the NPV of the lease relative to the purchase?
●
● B. $115,412
● C. $75,000
● D. $125,000
● E. None of these
NPV = $125,000 - $3,667PVIFA.072,3 = $125,000 - $9,588 = $115,412
Câu hỏi số 44
Your firm is considering leasing a radiographic x-ray machine. The lease lasts for 3 years. The lease
calls for 4 payments of $25,000 per year with the first payment occurring immediately. The
computer would cost $140,000 to buy and would be straight-line depreciated to a zero salvage value
over 3 years. The actual salvage value is negligible. The firm can borrow at a rate of 12%. The
corporate tax rate is 40%.What would the after-tax cash flow in year 3 be if the asset had a residual
value of $1,000 (ignoring any possible risk differences)?
● A. $600
● B. $1,000
● C. $4,067
● D. -$4,067
● E. None of these
Residual + CF3 = CF3 - RV(1 - TC) = $-3,667 - $1,000(1 - .40) = -4,067

Câu hỏi số 45
-Your firm is considering leasing a radiographic x-ray machine. The lease lasts for 3 years. The
lease calls for 4 payments of $25,000 per year with the first payment occurring immediately. The
computer would cost $140,000 to buy and would be straight-line depreciated to a zero salvage value

over 3 years. The actual salvage value is negligible. The firm can borrow at a rate of 12%. The
corporate tax rate is 40%.This lease would be classified as a(n):
● A. operating lease because the asset will be obsolete.
● B. operating lease because there is no amortization.
● C. leveraged lease because it is being financed.
● D. capital lease because the lease life is greater than 75% of the economic life.
● E. sale and leaseback because the company gets full use of the asset.


Câu hỏi số 46
-Your firm is considering leasing a new radiographic device. The lease lasts for 3 years. The lease
calls for 4 payments of $25,000 per year with the first payment occurring immediately. The
computer would cost $140,000 to buy and would be straight-line depreciated to a zero salvage value
over 3 years. The actual salvage value is negligible because of technological obsolescence. The firm
can borrow at a rate of 12%. The corporate tax rate is 40%.What is the after-tax cash flow from
leasing relative to the after-tax cash flow from purchasing in years 1-3?
● A. -$1,200
● B. -$1,577
● C. -$3,667
● D. -$13,000
● E. None of these
$-25,000(1 - .40) - ($140,000/3)(.40) = $-15,000 - $18,667 = $-3,667

Câu hỏi số 47
Your firm is considering leasing a new radiographic device. The lease lasts for 3 years. The lease
calls for 4 payments of $25,000 per year with the first payment occurring immediately. The
computer would cost $140,000 to buy and would be straight-line depreciated to a zero salvage value
over 3 years. The actual salvage value is negligible because of technological obsolescence. The firm
can borrow at a rate of 12%. The corporate tax rate is 40%.What is the after-tax cash flow from
leasing relative to the after-tax cash flow from purchasing in year 0?

● A. -$125,000
● B. -$15,000
● C. $15,000
● D. $125,000
● E. None of these
$-15,000 - $-140,000 = $125,000

Câu hỏi số 48
Your firm is considering leasing a new radiographic device. The lease lasts for 3 years. The lease
calls for 4 payments of $25,000 per year with the first payment occurring immediately. The
computer would cost $140,000 to buy and would be straight-line depreciated to a zero salvage
valueover 3 years. The actual salvage value is negligible because of technological obsolescence. The


firm can borrow at a rate of 12%. The corporate tax rate is 40%.What is the NPV of the lease
relative to the purchase?
●
● B. $115,412
● C. $75,000
● D. $125,000
● E. None of these
NPV = $125,000 - $3,667PVIFA.072,3 = $125,000 - $9,588= $115,411