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 relevant discount rate for evaluating a lease is the firm's:    A.  cost of equity financing. B.  pre-tax cost of borrowing. C.  aftertax cost of borrowing. D.  cost of working capital. E.  rate of return on short-term assets. Refer to section 27.4

27.

Which one of the following statements is correct concerning taxes and leasing?    A.  Tax-deferral is a legitimate reason for leasing. B.  The lessee should be the party with the higher tax bracket. C.  Generally speaking, lessors tend to benefit from leases while lessees do not. D.  If a firm has significant net operating losses, it should be the lessor in a lease. E.  You should only lease an asset if the lease will be fully amortized. Refer to section 27.7

28.	The most cited reason why firms enter into lease agreements is to:    A.  lower taxes. B.  improve cash flows. C.  reduce uncertainty. D.  avoid balance sheet reporting. E.  bypass restrictive loan covenants. Refer to section 27.7

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?    A.  keep the asset off the balance sheet B.  tax avoidance C.  lower total cost D.  increased collateral E.  nonrecourse protection Refer to section 27.7

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?    A.  $3,286.00 B.  $6,996.00 C.  $7,862.55 D.  $8,406.16 E.  $10,928.60 Aftertax lease payment = $10,600 (1 - 0.34) = $6,996