E long term debt provides for a balance sheet that

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Unformatted text preview: ) provides for a balance sheet that more accurately reflects the firm’s financial status. It thereby permits various types of financial ratio analyses to be performed directly on the statement by any interested party. 9. The Financial Accounting Standards Board in Standard No. 13 established certain guidelines for the appropriate discount rate to use when capitalizing leases. Most commonly, the rate that the lessee would have incurred to borrow the funds to buy the asset with a secured loan under terms similar to the lease repayment schedule is used. This simply represents the before-tax cost of a secured debt. 682 PART 6 Special Topics in Managerial Finance Advantages and Disadvantages of Leasing Leasing has a number of commonly cited advantages and disadvantages that managers should consider when making a lease-versus-purchase decision. It is not unusual for a number of them to apply in a given situation. Advantages The commonly cited advantages of leasing are as follows: 1. In a lease arrangeme...
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