Question 111 pts

Jane is asked to evaluate whether it would be better to lease an asset or to borrow money from the bank to buy the asset. The NPV from buying the asset is calculated to be $30,000. The NPV for the lease versus borrow to buy analysis is calculated to be $500. Which of the following statements best describe the lease versus buy decision for this investment?

Group of answer choices

More than one of the other statements is correct.

Jane should lease the asset as long as the lease payments are below $500.

Jane should lease the asset because her company would be better off by $500 compared to borrowing to buy the asset.

None of the other statements is correct.

The NPV from the lease versus borrow to buy decision allows Jane to create more wealth for the company compared to simply borrowing to buy the asset.

Flag question: Question 12

Question 121 pts

Which of the following statements best describes debt capital?

Group of answer choices

The holders of debt capital usually do not get voting rights.

It is a permanent contribution of capital by investors.

More than one of the other statements is correct.

None of the other statements is correct.

Debt capital is considered to be safer than equity capital.

Flag question: Question 13

Question 131 pts

Which of the following statements best describes debt covenants?

Group of answer choices

More than one of the other statements is correct.

A positive covenant may prevent the firm from issuing large dividends.

A positive covenant may prevent the firm from borrowing more money.

None of the other statements is correct.

A positive covenant may require the firm to provide audited financial statements to the lenders.

Flag question: Question 14

Question 141 pts

Why might leasing be advantageous for both the lessor and the lessee?

Group of answer choices

If the lessor's tax rates are higher, the lessor can share some of its tax benefits with the lessee in the form of higher lease payments.

None of the other statements is correct.

More than one of the other statements is correct.

If the cost of capital is lower for the lessee, then the lessee can share some of the lower cost of capital with the lessor in the form of higher lease payments.

The lessor can share some of the benefits related to lower transaction costs with the lessee in the form of lower lease payments.

Flag question: Question 15

Question 151 pts

Pinder Ltd needs a machine for its business. The machine costs $130,000 and has an expected life of 10 years. After the 10 years, the machine is expected to have a salvage value of $15,000. Pinder Ltd can borrow at 8% per annum from the bank to buy this machine. Alternatively, Pinder Ltd can also lease the machine for 10 years. The lease payment would be $16,000, payable in advance. The tax rate for Pinder Ltd is 35%, and the machine will be fully depreciated using a straight line method over its expected life. Which of the following values is closest to the incremental cash flow from leasing in year 5?

Group of answer choices

$-18,950

$-20,950

$-14,950

$-16,950

$-22,950