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| 1 | |
In a lease arrangement, the owner of the asset is: |
| | A) | The lien |
| | B) | The lessee |
| | C) | The lessor |
| | D) | The leaser |
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| 2 | |
Which of the following statements is not true? |
| | A) | The lessee does not have to buy the equipment |
| | B) | The lessee is responsible for making the lease payments |
| | C) | The lease payments are not tax-deductible |
| | D) | The lessee gives up the depreciation tax shield |
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| 3 | |
If the lessor borrows much of the purchase price of a leased asset, the lease is called: |
| | A) | A leveraged lease |
| | B) | A sale-and-leaseback |
| | C) | A capital lease |
| | D) | A non-recourse lease |
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| 4 | |
Who bears the risks of ownership with an operating lease? |
| | A) | Lessee |
| | B) | Lessor |
| | C) | Lessee and lessor equally |
| | D) | Varies, but it is specified in the contract |
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| 5 | |
Which of the following is a dubious reason for leasing? |
| | A) | Leasing avoids capital expenditure controls |
| | B) | Tax shields can be used |
| | C) | The lessor is well equipped to provide efficient maintenance |
| | D) | Standardization leads to low administrative and transaction costs |
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| 6 | |
Which of the following is a sensible reason for lease? |
| | A) | Maintenance is provided |
| | B) | Cancellation options are valuable |
| | C) | Convenience |
| | D) | All of these options |
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| 7 | |
Assume the initial financing provided by a lease is $100,000 and the present value of the cash outflow attributable to the lease is $90,000. Then the net value of the lease is: |
| | A) | $10,000 |
| | B) | −$10,000 |
| | C) | $190,000 |
| | D) | $95,000 |
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| 8 | |
For _____________ leases, the decision amounts to "lease versus borrow". |
| | A) | operating |
| | B) | financial |
| | C) | operating and financial |
| | D) | None of these options |
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| 9 | |
APV of a project is equal to: |
| | A) | NPV of project/NPV of lease |
| | B) | NPV of project − NPV of lease |
| | C) | NPV of project + NPV of lease |
| | D) | NPV of project × NPV of lease |
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| 10 | |
A financial lease is likely to be most beneficial to both parties when: |
| | A) | The lessor's tax rate is lower than the lessee's |
| | B) | The lessor's tax rate is higher than the lessee's |
| | C) | The lessor's tax rate is equal to the lessee's |
| | D) | A financial lease always has zero NPV, so both parties always break even. |
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| 11 | |
From the lessee's point of view, which of the following is not a direct cost associated with leasing? |
| | A) | The foregone depreciation tax shield |
| | B) | The after-tax lease payment |
| | C) | The purchase price of the asset |
| | D) | Debt displacement |
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| 12 | |
In valuing the lease versus purchase option, an irrelevant cash flow is: |
| | A) | Tax shield from depreciation |
| | B) | Investment outlay for the equipment |
| | C) | Operating cash flows associated to the new machine |
| | D) | None of the above are irrelevant |
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| 13 | |
If you plan to use an asset for an extended period of time, |
| | A) | Your equivalent annual cost of owning the asset will usually be less than the operating lease rate |
| | B) | Your equivalent annual cost of owning the asset will always be less than the operating lease rate |
| | C) | Your equivalent annual cost of owning the asset will never be less than the operating lease rate |
| | D) | Your equivalent annual cost of owning the asset will sometimes be less than the operating lease rate |
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| 14 | |
The firm X sold the office building and used the proceeds to improve its financial position. The firm then leased the building back in order to continue to use the facilities. This is an example of: |
| | A) | An operating lease |
| | B) | A short-term lease |
| | C) | A sale and lease-back |
| | D) | A fully amortized lease |
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| 15 | |
Long term leases include |
| | A) | Full-payout leases |
| | B) | Financial leases |
| | C) | Capital leases |
| | D) | All of these options |
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