22.
A capital lease is recorded as an asset on the balance sheet in an amount
equal to:
23.
Which one of the following correctly states one of the conditions
established by the IRS for a lease to be considered valid for tax purposes?
24.
The IRS will disallow any lease that:
25.
The incremental cash flows of leasing consider which of the following?
I. cost of the asset
II. lease payment amount
III. applicable tax rate
IV. annual depreciation expense
26.
The relevant discount rate for evaluating a lease is the firm’s:
27.
Which one of the following statements is correct concerning taxes and
leasing?
28.
The most cited reason why firms enter into lease agreements is to:
29.
Which one of the following is most likely the primary reason why a lessee
opts to lease an asset on a short-term basis rather than buy that asset?
30.
Fred’s Garage is trying to decide whether to lease or buy some new
equipment. The equipment costs $48,000 and has a 6-year life. The
equipment will be worthless after the 6 years and will have to be replaced.
The company has a tax rate of 34 percent, a cost of borrowed funds of 7.5
percent, and uses straight-line depreciation. The equipment can be leased
for $10,600 a year. What is the amount of the aftertax lease payment?
31.
Jamestown Supply is trying to decide whether to lease or buy some new
equipment. The equipment costs $72,000, has a 4-year life, and will be
worthless after the 4 years. The equipment will be replaced. The cost of
borrowed funds is 9 percent and the tax rate is 34 percent. The equipment
can be leased for $23,800 a year. What is the amount of the aftertax lease
payment?
32.
Northern Lights is trying to decide whether to lease or buy some new
equipment. The equipment costs $54,000, has a 5-year life, and will be
worthless after the 5 years. The company has a tax rate of 34 percent, a
cost of borrowed funds of 8.75 percent, and uses straight-line depreciation.
The equipment can be leased for $14,100 a year. What is the amount of the
annual depreciation tax shield?
33.
The Blue Goose is trying to decide whether to lease or buy some new
refrigeration equipment for the restaurant. The equipment costs $63,000,
has a 7-year life and will be worthless after the 7 years. The cost of
borrowed funds is 8.4 percent and the tax rate is 32 percent. The equipment
can be leased for $9,800 a year. What is the amount of the annual
depreciation tax shield if the firm uses straight-line depreciation?
34.
Val’s Pizzeria is contemplating the acquisition of some new commercial
ovens. The purchase price is $39,000. The equipment will be depreciated
based on MACRS depreciation which allows for 33.33 percent, 44.44
percent, 14.82 percent, and 7.41 percent depreciation over years 1 to 4,
respectively. The equipment will be worthless at the end of 4 years. The
equipment can be leased for $12,500 a year. The firm can borrow money at
8 percent and has a 35 percent tax rate. What is the amount of the
depreciation tax shield in year 3?
35.
Jane’s Floor Care is contemplating the acquisition of some new equipment
for refinishing wood floors. The purchase price is $74,000. The firm uses
MACRS depreciation which allows for 33.33 percent, 44.44 percent, 14.82
percent, and 7.41 percent depreciation over years 1 to 4, respectively. The
equipment can be leased for $24,600 a year. The firm can borrow money at
9.5 percent and has a 34 percent tax rate. What is the amount of the
depreciation tax shield in year 4?
36.
Steven’s Auto Detailers is trying to decide whether to lease or buy some
new equipment for polishing vehicles. The equipment costs $22,000, has a
3-year life, and will be worthless after the 3 years. The aftertax discount
rate is 6.2 percent. The annual depreciation tax shield is $1,760 and the
aftertax annual lease payment is $6,800. What is the net advantage to
leasing?
37.
Precision Tool is trying to decide whether to lease or buy some new
equipment for its tool and die operations. The equipment costs $1.2 million
has a 7-year life, and will be worthless after the 7 years. The pre-tax cost of
borrowed funds is 8 percent and the tax rate is 32 percent. The equipment
can be leased for $242,500 a year. What is the net advantage to leasing?
38.
Deep Mining, Inc., is contemplating the acquisition of some new equipment
for controlling coal dust that costs $174,000. The firm uses MACRS
depreciation which allows for 33.33 percent, 44.44 percent, 14.82 percent,
and 7.41 percent depreciation over years 1 to 4, respectively. After that
time, the equipment will be worthless. The equipment can be leased for
$53,100 a year for 4 years. The firm can borrow money at 11.5 percent and
has a 36 percent tax rate. What is the net advantage to leasing?
39.
National Event Coordinators is contemplating the acquisition of a new tent
that will be used for major outdoor events. The purchase price is $147,000.
The firm uses MACRS depreciation which allows for 33.33 percent, 44.44
percent, 14.82 percent, and 7.41 percent depreciation over years 1 to 4,
respectively. The tent will be worthless after four years. The tent can be
leased for four years at $42,500 a year. The firm can borrow money at 7.5
percent and has a 34 percent tax rate. What is the net advantage to
leasing?
