1. A bond issue should be refunded when: A. bondholders desire the return of the

Question

1. A bond issue should be refunded when:

A. bondholders desire the return of their funds

B. it is too expensive to issue additional common stock

C. interest rates drop and you believe they will increase again

D. the existing bonds contain no call provision

2. Which of the following is not a characteristic of a capital lease?

A. It transfers the ownership of the property by the end of the lease terms.

B. It contains a bargain purchase price.

C. It has a lease term equal to at least 75% of the estimated life of the leased asset.

D. It is usually short-term in nature and cancellable at the lessee's option.

3. In terms of tax consequences, the following can be said about leasing:

A. there is no differential tax treatment between an operating lease and a capital lease.

B. it allows one party with higher tax bracket to take advantage of an investment tax credit and then leases the asset to another party in a lower tax bracket for actual use.

C. operating leases can have annual amortization deduction.

D. capital leases incur tax savings in the amount of annual lease payments.

Explanation / Answer

1) A. bondholders desire the return of their funds

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2)D. It is usually short-term in nature and cancellable at the lessee's option.

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3)D. capital leases incur tax savings in the amount of annual lease payments.

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