Many firms are using leasing techniques to improve performance. Leasing offers opportunities to unlock funds tied up in assets and also offers the potential to generate additional cash flows through efficient tax management. The technique of sale-leaseback was used for real estate, but the technique can also be used for other productive assets.

1. Leasing transactionsparticularly sales-leasebacksare often labeled as balance sheet mining transactions. What does that mean? 2. What is the potential advantage of having a lease categorized as an operating lease instead of a capital lease? 3. What are the risks associated with these types of leases?

You are asked to evaluate a project. For the project to be accepted, the discounted payback period criteria is that it must be less than 7 years. For the project to be accepted, the IRR criteria is that the IRR must be greater than 8%.

Your calculations show that the discounted payback period is 9 years, but the IRR is 8.5%. Would you accept the project?

You may consider whether the firm can obtain long-term financing of greater than 9 years. Discuss.

You find that the