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conceptSM_ch22 - CONCEPT QUESTIONS CHAPTER 22 22.1 What are...

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CONCEPT QUESTIONS – CHAPTER 22 22.1 What are the differences between an operating lease and a financial lease? 1. Operating leases have a cancellation option. 2. In an operating lease, the lessor maintains and insures the leased asset. With financial leases the lessee must do both himself. 3. Operating leases are not fully amortized. What is a sale and lease-back agreement? A sale and lease-back occurs when a company sells an asset it owns to another firm and immediately leases it back. How does a leveraged lease work? A leveraged lease is a three-sided arrangement among the lessee, the lessor, and the lenders. The lessee uses the assets and makes periodic lease payments. The lessor purchases the assets, delivers them to the lessee, and collects the lease payment. The lessor puts up no more than 40 to 50 percent of the purchase price. The lenders supply the remainder and receive interest payments from the lessor.
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