In the chapter, the lease versus buy decision was called an unfair comparison. Why? What is the correct comparison?
What will be an ideal response?
Answer: When a firm enters into a lease, it is committing to lease payments that are a fixed future obligation of the firm. If the firm is in financial distress and cannot make the lease payments, the lessor can seize the machine. Moreover, the lease obligations themselves could trigger financial distress.
Therefore, when a firm leases an asset, it is effectively adding leverage to its capital structure (whether or not the lease appears on the balance sheet for accounting purposes). Because leasing is a form of financing, we should compare it to other financing options that the firm may have. Rather than buy the asset outright, the firm could borrow funds (or reduce its planned cash balances, and thereby increase its net debt) to finance the purchase of the machine, thus matching the leverage of the lease. Thus, the correct comparison is lease versus borrow.
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Which of the following is most likely a part of the American culture?
A) Responsibilities for organizational errors are taken by the highest level. B) Negotiations are lengthy and enable involved parties to get to know each other. C) A monochronic time system is followed and time is considered precious. D) A person's word can be relied upon and no written agreements are needed.
All states require a written proxy.
Answer the following statement true (T) or false (F)
All of the following departments have a copy of the purchase order except
a. the purchasing department b. the receiving department c. accounts payable d. general ledger
The market structure method of competition identification is based on the premise that
________. A) most markets are structured as monopolies B) all players in a market have an equal market share C) most markets have a familiar structure D) the market structure depends on profit margins