Reference no: EM13890127
There are two parties in any lease contract - Lessee and the lessor. To a lessor, a lease analysis involves a capital digesting analysis of the property or equipment to be leased. The lessor's decision is either to purchase and lease-out the asset, or not make the investment at all.
Like any capital budgeting decision, the lessor needs to evaluate the rate of return expected to be earned from making the lease. Further, since the cost and other terms of leases involving high-cost items are negotiated, this rate of return information is also important information for a prospective lease.
1. From the following statements, identify the steps involved in a lease analysis from a lessor's perspective. CHECK ALL THAT APPLY, MORE THEN ONE ANSWER CAN BE CORRECT
a. Determine periodic cash inflows from the lessee
b. Determine the invoice price of the leased equipment plus any lease payments made in advanced
c. Determine the net cash outlay of the lease agreement
d. Check and ensure that the lessor's cost of capital is more than the rate of return on the lease
2. Pele Corp. is a professional leasing company. The leasing manager has to evaluate some lease agreements under the following conditions:
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