boken kap 17 del 2 Flashcards
- What is the simple method for evaluating leases?
o Discount all cash flows at the after-tax incremental borrowing rate.
- What determines whether leasing pays?
o Cash flow timing.
- What is the lessee’s reservation payment?
o The payment that sets the NPV of the contract to the lessee at 0 (maximum acceptable payment for the lessee).
- What is the lessor’s reservation payment?
o The payment that sets the NPV of the contract to the lessor at 0 (minimum acceptable payment for the lessor).
- What is a balloon payment in a lease?
o A large payment required in the final year when the present value of the lease payments is less than the initial value of the asset.
- What are good reasons for leasing?
- Reduction of uncertainty
- lower transaction costs.
- What is residual value in the context of leasing?
o The remaining value of an asset when an operating lease expires.
- Why might leasing be beneficial in terms of transaction costs?
Costs of changing an asset’s ownership are generally greater than the costs of writing a lease agreement.
- Why is reducing taxes no longer a valid reason for leasing?
o The taxation benefits of a lease disappeared with IFRS 2019.
- Does leasing improve the statement of financial position?
o No, leasing no longer improves the statement of financial position.
- Why is one hundred per cent financing not a good reason for leasing?
Financial leases will displace debt elsewhere in the firm.
How do you decide what type of lease it is in accounting?
If the lessee bears most of the risk: financial lease
If the lessor bears the risk: operating lease if the lessor.
What is the after tax lending rate?
The rate after taking taxes into account.
How do you find the increase or decrease in Optimal debt level in a World with Corporate taxes?
by discounting a future guaranteed after-tax inflow/outflow at the after-tax riskless interest rate
How do you calculate the after-tax incremental borrowing rate?
interest rate × (1- Corporate tax rate)
