If a leased asset were scrapped from a continuing CCA pool after four years, and its UCC

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Question:

If a leased asset were scrapped from a continuing CCA pool after four years, and its UCC were $10,000 and its salvage is zero, what would the present value of this asset's tax shelter be if the appropriate after-tax borrowing rate is 9%, the CCA rate is 20%, and the tax rate is 40%?

Multiple Choice

-$2,759
-$1,955
+$10,000
+$2,759

If a financial analysis of a lease shows a negative result of $500, a manufacturer could alter the lease terms to make leasing profitable by:

Multiple Choice

cutting his price to the lessor by more than $500.
raising the CCA rate for the lessor.
raising salvage value by lowering the discount rate.
raising the lease terms

Canada Customs and Revenue Agency is suspicious of financial leases that exhibit the following non-lease characteristic:

Multiple Choice

the term is very long.
there is a down payment.
lease payments change in size over the lease term.
the lease allows the asset's title to pass to the lessee without significant cost at the lease's end

Which one of the following is not a cash flow item in financial lease analysis?

Multiple Choice

the lessor's repayment schedule for financing the asset.
the value of the salvage to the lessor.
the CCA tax shelters of the lessor.
the lease payment's tax shelter impacts for the lessee

Lease capitalization's value determination requires one of the following methods.

Multiple Choice

finding the net present value of future lease payments.
recording the asset's purchase price as the lessee's asset.
the lessor shows the asset's effect on his leverage.
altering the lessee's restrictive covenants by the amount of the asset's value

All of the following must be included on a company's balance sheet except:

Multiple Choice

capital leases.
sale and leaseback agreements.
operating leases.
leveraged leases.

Which of the following is not a normally attractive feature of an operating lease?

Multiple Choice

the lessee has the option to cancel.
the lessee only needs the equipment for a short time.
the lessee can't afford to buy the asset.
the lessor offers superior and cheaper maintenance than the lessee can perform.

As a practical matter, the lessee uses a single discount rate for lease analysis, but a more refined approach would do which of the following?

Multiple Choice

use a different discount rate for every line on the lease analysis' cash flows, and so reflect differing risk for each cash item.
use a zero discount rate for the lease payment, a high rate only for the CCA tax benefits, and a middle rate for the other cash flows.
use one discount rate for the lease tax shelter, and another for the other cash flows.
use a low, middle, and high discount rate and pick the average result

If the asset described in above Question had a CCA rate of 30%, with the usual half-year rule, and were leased for 5 years, how would the lessee treat the five years of CCA? The lessee tax rate is 40%. The asset class uses declining balance.

Multiple Choice

lessee would calculate the CCA amounts for each of the five years, apply the tax rate against these amounts, and show these amounts as cash outflows.
lessee would calculate the CCA amounts for the entire life of the asset, and show those amounts as cash flows.
lessee would ignore the CCA, since it is the lessor's financial province.
lessee would treat the CCA calculations for each of the five years of the lease as cash inflows for the lessor.

If an asset has a positive salvage of $1,000, exactly equal to UCC, then the lease analysis for an asset alone in its pool will show the following cash flows for that phenomenon.

Multiple Choice