Chapter19solutions

Chapter19solutions - Chapter 19 Lease Financing ANSWERS TO...

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Chapter 19 Lease Financing ANSWERS TO END-OF-CHAPTER QUESTIONS 19-2 An operating lease is usually cancelable and includes maintenance. Operating leases are, frequently, for a period significantly shorter than the economic life of the asset, so the lessor often does not recover his full investment during the period of the basic lease. A financial lease, on the other hand, is fully amortized and generally does not include maintenance provisions. An operating lease would probably be used for a fleet of trucks, while a financial lease would be used for a manufacturing plant. 19-3 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 have reduced the depreciation benefits of owning, so tax rate differentials are less important now than in the past. 19-6
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This note was uploaded on 12/11/2011 for the course FINC 3630 taught by Professor Jensen,m during the Summer '08 term at Auburn University.

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Chapter19solutions - Chapter 19 Lease Financing ANSWERS TO...

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