Financial Equipment Leasing Discussion

Financial Equipment Leasing Discussion1. A(n) ______________ is a contract wherein, over the term
of the ______________, the owner of the equipment permits another entity to use it in exchange for a promise by
the latter to make a series of ______________. The owner
of the equipment is referred to as the ______________.
The entity that is being granted permission to use the
equipment is referred to as the ______________.
2. ______________ leases fall into two general categories:
______________-oriented leases and ______________-oriented true leases. ______________-oriented leases, also
referred to as ______________ leases, transfer all incidents
of ownership of the leased property to the lessee and usually
give the lessee a fixed ______________, bargain purchase
option, or ______________ option not based on fair market value at the time of exercise. Substantial cost savings
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264 QUESTIONS AND PROBLEMS
can often be achieved through the use of ______________-
oriented true leases in which the ______________ claims
and retains the tax benefits of ownership and passes
through to the ______________ a portion of such tax benefits in the form of reduced lease payments.
3. The most frequent ______________ cited by ______________
company representatives and ______________ is that leasing ______________ working capital. The reasoning is as
follows: When a firm ______________ money to purchase
equipment, the lending institution rarely provides an
amount ______________ to the entire price of the equipment to be financed. Instead, the lender requires the
______________ firm to take a(n) ______________ position in the equipment by making a down ______________.
4. The amount of the down ______________ will depend on
such factors as the type of ______________, the
______________ of the borrower, and prevailing
______________ conditions. ______________, in contrast,
typically provides 100% financing because it does not
require the firm to make a down payment. Moreover,
costs incurred to acquire the equipment, such as
______________ and ______________ charges, are not
usually covered by a loan agreement. They may, however,
be structured into a(n) ______________ agreement.
5. Current financial reporting ______________ for leases
require that lease obligations classified as ______________
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Equipment Leasing 265
leases be capitalized as a(n) ______________ on the
______________ sheet. A(n) ______________ lease is
______________ capitalized. Instead, certain information
regarding such leases must be disclosed in a(n)
______________ to the ______________ statement. Many
chief financial officers avoid ______________ leases to
enhance the financial image of their corporations; instead
they prefer ______________ leases.
6. With a(n) ______________ operating lease, the lessee can
avoid the risk of ______________ by terminating the contract. However, the ______________ of risk is not without
a(n) ______________ as the lease payments under such
lease arrangements reflect the risk of obsolescence perceived by the lessor. At the end of the lease term, the
______________ of the obsolete equipment becomes the
problem of the ______________. The risk of loss in residual ______________ that the lessee passes on to the lessor
is embodied in the ______________ of the lease.
7. An advantage of leasing is that lease agreements typically do
not impose financial ______________ and ______________
on management as does a(n) ______________ agreement
used to finance the purchase of equipment. The historic
reason for this in ______________ leases is that the
______________ Service discouraged ______________ leases
from having attributes of ______________ agreements.
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266 QUESTIONS AND PROBLEMS
8. In a properly structured ______________ lease arrangement,
the ______________ lease payment from leasing rather than
borrowing can provide a lessee with a(n) ______________
cash flow. Whether the cash flow on a(n) ______________
basis after taking the residual value of the equipment into
account is ______________ on a present value basis must be
ascertained. Lease payments under a(n) ______________
lease will usually have ______________ impact on
______________ earnings during the early years of the lease
than will ______________ and ______________ payments
associated with the purchase of the same equipment.
9. Corporate lessors may be generally categorized as
______________ banks or their ______________, independent ______________ companies, ______________
leasing subsidiary companies of nonfinance companies,
______________ companies or their subsidiaries,
______________ banking firms, and subsidiaries of life
or casualty ______________ companies.
10.Many banks and bank holding companies or their subsidiaries participate ______________ in leasing through
______________ relationships with independent and captive leasing companies. ______________ leasing or finance
companies are generally ______________ of equipment
manufacturers, and their primary purpose is to secure
financing for the customers of the ______________ company. ______________ also may be involved in the
______________ financing of equipment other than that
manufactured by their parent company.
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Equipment Leasing 267
11.Lease ______________ and financial ______________ can
perform a useful service for both lessees and lessors in
arranging ______________ leases. They can be especially
helpful to a lessee by obtaining attractive ______________
from a legitimate investor and advising the lessee in
______________ and ______________ the transaction.
While lease brokers and financial advisers typically represent ______________, they can be helpful to a(n)
______________ in finding solutions to negotiating issues.
For its services as an intermediary, the broker or adviser
receives a(n) ______________ commission. The amount of
the remuneration depends on the ______________ and
______________ of the deal to the lessor in the prevailing
economic ______________.
12.The __________ lease provides the lessee with __________
benefits and the lessor with __________ benefits. The lease is
treated as a(n) __________ sheet item and protects the lessee’s __________ of acquiring the residual value of the leased
equipment at the termination of the lease.

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