FI516_Homework4_BrianLin - Brian Lin D01278742 Week 5...

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Brian Lin D01278742 Week 5 Homework Chapter 18 Questions Problem 18-3 Are lessees more likely to be in a higher or lower income tax brackets than lessors? You would expect to find that lessees, in general, are in relatively low income-tax brackets, while lessors tend to be in high tax brackets. The reason for this is that owning tends to provide tax shelters in the early years of a project’s life. These tax shelters are more valuable to taxpayers in high brackets. However, current tax laws (1998) have reduced the depreciation benefits of owning, so tax rate differentials are less important now than in the past. Problem 18-4 Commercial banks moved heavily into equipment leasing during the 1970s, acting as lessors. One major reason for this invasion of the leasing industry was to gain the benefits of accelerated depreciation and the investment tax credit on leased equipment. During this same period, commercial banks were investing heavily in municipal securities, and they were also making loans to real estate investment trusts (REITs). In the mid-1970s, these
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