If a firm does not expect to owe taxes for a few years and needs some equipment, the firm should:

A financial lease: I. is generally a fully amortized lease. II. usually requires the lessee to insure the asset. III. is generally cancelable without penalty if the lessee provides 30 days advance notice. IV. is referred to as a capital lease by accountants.    A.  I and III only B.  II and IV only C.  I and II only D.  II, III, and IV only E.  I, II, and IV only Refer to section 27.1

17.

If a firm does not expect to owe taxes for a few years and needs some equipment, the firm should:    A.  lease the equipment and retain the tax benefits. B.  lease the equipment with the lessor retaining the tax ownership of the asset. C.  borrow the money to buy the asset and then depreciate it using MACRS depreciation. D.  buy the equipment with cash and depreciate it using MACRS. E.  buy the equipment and depreciate it straight-line over the life of the asset. Refer to section 27.1

18.

If a lessor borrows money on a nonrecourse basis to purchase an asset that will be leased to another party, then:    A.  the lessor is responsible for the payments on the borrowed funds whether or not the lessee pays the lease payments. B.  the lessee must pay both the lease payment and the loan payment. C.  the loan is considered paid in full if the lessee discontinues making the lease payments or terminates the lease early. D.  the lessor is only obligated to make loan payments as long as the lessor is collecting the lease payments. E.  the lessor must pursue the lessee if the lessee fails to make the agreed upon lease payments. Refer to section 27.1

19.

If a firm enters a sale and leaseback agreement, then: I. the lessee will benefit from an immediate cash inflow. II. both the lessor and the lessee may benefit if the lessor can benefit more from the tax benefits of ownership than can the lessee. III. the lease automatically becomes a nonrecourse lease. IV. the lessee forfeits the right to repurchase the asset at a later date.    A.  I and III only B.  II and IV only C.  I and II only D.  II and III only E.  III and IV only