Options which are sometimes used by corporations to

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Unformatted text preview: rom 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.

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