FM11_Ch_20_Test_Bank

FM11_Ch_20_Test_Bank - CHAPTER 20 LEASE...

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CHAPTER 20 LEASE FINANCING (Difficulty: E = Easy, M = Medium, and T = Tough) True-False Easy: Types of leases Answer: a Diff: E 1 . Many leases written today combine the features of operating and financial leases. Such leases could be called “combination leases.” a. True b. False Lease financing Answer: b Diff: E 2 . Leasing is typically a financing decision and not a capital budgeting decision. Thus, the availability of lease financing cannot affect the capital budgeting decision. a. True b. False Leveraged lease Answer: b Diff: E 3 . A leveraged lease is more risky from the lessee’s standpoint than is an unleveraged lease. a. True b. False Types of leases Answer: a Diff: E 4 . A sale and leaseback arrangement is a type of financial, or capital, lease. a. True b. False Lease payments Answer: a Diff: E 5 . The full amount of a lease payment is tax deductible if the contract is a genuine lease. a. True b. False Chapter 20 - Page 1
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Operating lease Answer: a Diff: E 6 . Operating leases help to pass the risk of obsolescence from the user to the lessor. a. True b. False Sale and leaseback Answer: a Diff: E 7 . Under a sale and leaseback arrangement, the seller is the lessee and the buyer is the lessor. a. True b. False Off-balance sheet leasing Answer: a Diff: E 8 . Leasing is often referred to as off-balance sheet financing because lease payments are shown as operating expenses on a firm's income statement, and under certain conditions, leased assets and associated liabilities do not appear on the firm's balance sheet. a. True b. False Medium: Synthetic leases Answer: b Diff: M 9 . A synthetic lease is a combination of derivative securities and asset purchases that mimic the cash flows of an operating lease. a. True b. False Synthetic leases Answer: b Diff: M 10 . In a synthetic lease a special purpose entity (SPE) leases an asset and turns it over to the company for use, keeping the asset off of the company’s books. a. True b. False Special purpose entity Answer: a Diff: M 11 . A special purpose entity (SPE) is a company set up to purchase an asset and then lease it back to another company in such a way that neither the asset nor the capitalized lease must appear on the company’s books. a. True b. False Chapter 20 - Page 2
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Residual value and lease rates Answer: b Diff: M 12 . If a leased asset has a negative residual value, for example, as a result of a statutory requirement to dispose of an asset in an environmentally sound manner, the lessee of the asset could reasonably expect to pay a lower lease rate because the asset does not have a positive residual value. a. True b. False Residual value and lease rates Answer: b Diff: M 13 . Assume that a piece of leased equipment has a high rather than a low residual value. From the lessee's viewpoint, it might be better to own the asset than to lease it because with a high residual value the lessee will likely face a higher lease rate. a. True
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This test prep was uploaded on 04/19/2008 for the course FIN 332 taught by Professor Dasilva during the Fall '08 term at CSU Fullerton.

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FM11_Ch_20_Test_Bank - CHAPTER 20 LEASE...

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