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an underlying asset that is often another security.
Options, which are sometimes used by corporations
to manage risk, are a popular derivative security.
LG1 Review the basic types of leases, leasing
arrangements, the lease-versus-purchase decision, the effects of leasing on future financing, and
the advantages and disadvantages of leasing. A lease
enables the firm to make contractual, tax-deductible
payments to obtain the use of fixed assets. Operating leases are generally 5 or fewer years in term,
cancelable, and renewable, and they provide for
maintenance by the lessor. Financial leases are
longer-term, noncancelable, and not renewable, and
they require the lessee to maintain the asset. FASB
Standard No. 13 provides specific guidelines for
defining a financial (or capital) lease. A lessor can
obtain assets to be leased through a direct lease, a
sale–leaseback arrangement, or a leveraged lease.
The lease-versus-purchase decision can be evaluated
by calculating the after-tax cash outflows...
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This document was uploaded on 01/19/2014.
- Fall '13