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101Which  criterion would make the following lease a financial (capital)

Question : 101Which  criterion would make the following lease a financial (capital) : 1405826

 

 

101Which  criterion would make the following lease a financial (capital) lease?

Cost of asset

$52 775

Lessee's borrowing rate

6.5%

Lessee's tax rate

30%

Annual lease payments

$9 012

Estimated economic life of the leased asset

6 years

Term of lease

10 years

Lessor's implied discount rate

6.5%

Asset's estimated fair market value at the end of the lease

$2 000

Purchase option at the end of the lease

$2 000

Owner of asset by the end of the lease

Lessor


AThe lessee has an option to purchase the asset at the end of the lease at a price below fair market value

BThe lease transfers ownership to the lessee by the end of the lease term

CAt the beginning of the lease, the present value of the lease payments is at least 90% of the asset's fair market value

DThe term of the lease is at least 75% of the asset's estimated economic life

 

102What is a capitalized lease?
AAn operating lease where the present value of of the lease payments is greater than the purchase cost of the leased asset.

BAn operating lease where the fair market value of the leased asset at the end of the lease term is subtracted from the present value of the lease payments.

CA financial lease where the present value of the lease payments include the cost of servicing and maintaining the leased asset.

DA financial lease that has the present value of the lease payments included as an asset and as an offsetting liability on the company's balance sheet.

 

103Marsden Travels Limited is considering a leasing arrangement to acquire new computers and office furniture. Marsden's before-tax short-term borrowing rate is 5.5%, its before-tax long-term borrowing rate is 7%, its tax rate is 35% and the lessor's implied discount rate is 6%. Which of the following rates should Marsden use in its analysis of the lease-or-purchase issue?
AIts after-tax long-term borrowing rate
BIts before-tax short-term borrowing rate

CThe lessor's implied discount rate
DIts before-tax long-term borrowing rate

 

104Carpinelli Foods Limited is considering a leasing arrangement to acquire new processing equipment. Carpinelli's before-tax short-term borrowing rate is 5%, its before-tax long-term borrowing rate is 8%, its tax rate is 30% and the lessor's implied discount rate is 6%. What is the rate Carpinelli should use in its analysis of the lease-or-purchase issue?
A8%
B5.6%
C6%
D5%

 

105Valcourt Industries is considering a leasing arrangement to acquire new processing equipment. Valcourt's cost of capital is 10%, its before-tax long-term borrowing rate is 8%, its tax rate is 30% and the lessor's implied discount rate is 5%. What is the rate Valcourt should use to discount the salvage value of its existing equipment in a lease-or-purchase analysis?
A5%
B5.6%
C10%
D8%

 

106Which of the following statements about costs related to the maintenance and insurance of a leased asset is correct?
AIf the lessee pays for maintenance and insurance of the asset, these costs must be included in the lease payments used in a lease-or-purchase analysis.

BMaintenance and insurance costs must always be included in the lease payments no matter who actually pays them.

CMaintenance and insurance costs are never included in the lease payments  no matter who actually pays them.

DIf the lessor pays for maintenance and insurance of the asset, these costs must be included in the lease payments used in a lease-or-purchase analysis.

 

107Pharma Support Limited is considering the lease of new computers from IT Leasing Limited. The computers cost $65 377 and have an estimated economic life of 3 years. The CCA rate is 45% and Pharma Support has a borrowing rate of 12% and a cost of capital of 10%. IT Leasing's borrowing rate is 8% and its cost of capital is 6%. Both companies have a tax rate of 30%. What is the value of the tax shield for IT Leasing?
A$12 077
B$15 318
C$16 816
D$13 984

 

108Rufus Brewing Company is considering the lease of new office furniture from National Leasing Limited. The furniture costs $11 250 and has an estimated economic life 5 years. The CCA rate is 20% and Rufus Brewinghas a borrowing rate of 9% and a cost of capital of 8%. National Leasing's borrowing rate is 8.5% and its cost of capital is 6.6%. Both companies have a tax rate of 35%. What is the value of the tax shield for Rufus Brewing?
A$3 028
B$3 369
C$2 708
D$2 932

 

109Island Tool and Dye Limited is a Prince Edward Island based manufacturing company considering acquiring new machinery worth $25 956. Island Tool and Dye may purchase the equipment from their supplier or lease it from Town and Country Leasing. The machinery's estimated salvage value after 8 years is estimated at $2 600. Island Tool and Dye's tax rate is 35%, before-tax borrowing rate 10%, and the CCA rate is 20%. Keeping in mind that Island Tool and Dye is eligible for the federal Investment Tax Credit (ITC), what is the present value of the company's cost of purchasing the equipment? Round your final answer to the nearest dollar.
A$18 115
B$16 510
C$17 290
D$15 843

 

110Scotia Manufacturing Limited is a Nova Scotia based manufacturing company considering acquiring new machinery worth $66 275. Scotia Manufacturing may purchase the equipment from their supplier or lease it from Atlantic Leasing. The machinery's estimated salvage value after 6 years is estimated at $7 000. Scotia Manufacturing's tax rate is 40%, before-tax borrowing rate 12%, and the CCA rate is 20%. Keeping in mind that Scotia Manufacturing is eligible for the federal Investment Tax Credit (ITC), what is the present value of the company's cost of purchasing the equipment? Round your final answer to the nearest dollar.
A$35 739
B$39 734
C$32 866
D$37 515

 

 

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