Sample Questions
1. What is the difference between a financial lease and operating lease?
A. There is an often a call option in a financial lease.
B. There is often an option to buy in an operating lease.
C. An operating lease is often cancelable by the lessee.
D. None of the above
2. What is the principal reason for the existence of leasing?
A. Intermediate-term loans are difficult to obtain.
B. This is a type of financing unaffected by changes in tax law.
C. Companies and individuals derive different benefits from owning assets.
D. None of the above
3. Which of the following is a way to analyze whether debt or lease financing would be preferable?
A. Compare the net present values under each alternative, using the cost of capital as the discount rate.
B. Compare the net present values under each alternative, using the after-tax cost of borrowing as the discount rate.
C. Compare the payback periods for each alternative.
D. None of the above
4. What does a conventional revolving credit agreement allows a firm to?
A. Borrow a fixed amount for the entire commitment period.
B. Borrow for a short-period with a right to renew the loan during the commitment period.
C. All of the above
D. None of the above
5. What does the type of lease that includes a third party, a lender, is called?
A. Sale and leaseback.
B. Direct leasing arrangement
C. Leveraged lease
D. None of the above
Answers: 1 (C), 2 (C), 3 (B), 4 (C), 5 (C)
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