How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Linda_us Your Own Question

Linda_us, Finance, Accounts & Homework Tutor
Category: Homework
Satisfied Customers: 7291
Experience:  Post Graduate Diploma in Management (MBA)
Type Your Homework Question Here...
Linda_us is online now
A new question is answered every 9 seconds

C2. (Leasing, taxes, and the time value of money) The lessor

This answer was rated:

C2. (Leasing, taxes, and the time value of money) The lessor can claim the tax deductions associated with asset ownership and realize the leased asset’s residual value. In return, the lessor must pay tax on the rental income.
a. Explain why a financial lease represents a secured loan in which the lender’s entire debt service stream is taxable as ordinary income to the lessor/lender.
b. In view of the tax cost, what tax condition must hold in order for a financial lease transaction to generate positive net-present-value tax benefits for both the lessor and lessee?
c. Suppose the lease payments in Table 21-2 must be made in advance, not arrears. (Assume that the timing of the lease payment tax deductions/obligations changes accordingly but the timing of the depreciation tax deductions does not change). Show that the net advantage to leasing for NACCO must decrease as a result. Explain why this reduction occurs.
d. Show that if NACCO is nontaxable, the net advantage to leasing is negative and greater in absolute value than the net advantage of the lease to the lessor.
e. Either find a lease rate that will give the financial lease a positive net advantage for both lessor and lessee, or show that no such lease rate exists.
f. Explain what your answer to part e implies about the tax costs and tax benefits of the financial lease when lease payments are made in advance.

Please show work I will include a tip

You need to spend $3 to view this post. Add Funds to your account and buy credits.
Linda_us and other Homework Specialists are ready to help you

Related Homework Questions