Leasing H17

Question 1

What is leasing

Answer 1

Basically to subscribe to an asset f.ex paying periodical payments for unlimited access to a vehicle instead of buying one.

Question 2

Does leases apear on balance sheets

Answer 2

Not right now but regulations as a consequence of the gfc aims to bring them back

Question 3

What is sales-type leasing

Answer 3

When the manufacturing company offers leasing as an alternative to sale

Question 4

What is an operating lease and what are their common characteristics

Answer 4

When an operator is included with the lease, common characterisics are that 1. the leases are not fully amorticized aka NPV of payments are smaller than the cost of buying the assets as the lease is often shorter than the useful life of the asset. 2; assets are often maintained and insured by the leaser. 3; lastly an option to cancle the lease is often included.

Question 5

What are the characteristics of financial leases

Answer 5

1; no maintanence is included, 2; they are fully amortized, 3; There is usually an option to expand the lease length and 4; they most often cannot be cancelled.

Question 6

What is a sale and leaseback

Answer 6

When a firm sells an asset to a company and imediately leases it back from the company it sold it to, a liquidity strategy.

Question 7

What are leveraged leases

Answer 7

When a leasor takes a loan to finance more than 40 to 50 percent of the cost of the assets and uses the periodical payments to pay interest.

Question 8

There are tax benifits to leveraged leasing

Answer 8

True

Question 9

If the leasor goes bankrupt in leveraged leasing they periodical payments goes to the bank

Answer 9

True

Question 10

The lender has full lien on the asset on leveraged leasing

Answer 10

Yes they may posess it if they are not payed

Question 11

Leases only need to apear in footnotes in the balance sheet

Answer 11

False, they nowadays have their own accounting standard

Question 12

Operatin leases are expenses on the balance sheet

Answer 12

True

Question 13

Financially leased assets arenormal assets on the balance sheet

Answer 13

True

Question 14

Assets obtained through operating leases are counted as assets on the balance sheet

Answer 14

False, they are seen as mere expenses

Question 15

When leasing a financial lease it is just counted as a revenue

Answer 15

True

Question 16

When leasing an operating lease the contract is an asset to the leasor

Answer 16

True and it is depreciated normally like any other asset.

Question 17

How does operating leases effect the cashflow

Answer 17

You save the initial payment which is usually added back. You loose the tax benefit of depreciation but the leaseing payments are tax deducted. Operating costs are often the same as if the asset was owned.

Question 18

In a world with coorporate taxes a firm should discount riskless cashflows by what

Answer 18

At the after-tax riskless rate of interest aka at the rate of T-bills

Question 19

How do you calculate the after tax discount rate

Answer 19

cost of capital * (1 - corporate tax rate)

Question 20

how do you calculate the NPV of a lease

Answer 20

The initial payment saved - yearly payments discounted by after tax discount rate

Question 21

Can indefinate leasing by definition be a profitable alternative for both parties

Answer 21

No, not as long as the parties face the same taxes and interest rates

Question 22

What are some good reasons to lease

Answer 22

It might reduce taxes, it may reduce uncertainties and it may have lower transaction costs

Question 23

What is the reservation payment of a lease

Answer 23

The payment which would make both the parties gain from entering into a lease zero

Question 24

Name some bad reasons for leasing

Answer 24

accounting reasons because it lowers asset value and people will see through the lower liabilities, and to reach 100% financing as leasing displaces other debt and does not have the tax benefits of interest payments.

Question 25

Can leasing and debt complement eachother

Answer 25

Yes sort of, firms with high debt capacity often also have attributes that makes them benefit form leases

Question 26

If an asset is more sensitive to maintanence and usage decisions it is more likely to be purchased than leased

Answer 26

True

Question 27

Smal firms have it easyer to get a lease than a good loan

Answer 27

True