for 111th, I think it should be $400 instead of -$400. It is clear that we calculate it as 1000*(60-52-4)=400. For 67th, Which of the following is least likely to be an incentive for structuring a lease as an operating lease instead of a capital lease? B The lessee is in a high tax bracket and the lessor is in a low tax bracket D Management compensation contracts constain provisions expressing compensation as a function of returns on invested capital I am thinking, lessee and lessor are in a 0 sum game. This means lessee and lessor have to adopt opposite accounting off balance sheet methods(one capital, the other has to use operating). and say if lesse is in a high tax bracket, it can get the benefit in the early year by using operating lease, because operating lease has higher expense in early year, however, it will loose as later year. So the total will be the same. so it does not matter for the lessee in term of tax benefit over all. Same applies to the lessor. For D, since capital lease gives higher invested capital, so management compensation will be higher? so it will prefer to use capital lease? So this is not likely for structuring a lease as operating lease? So D should be correct? The answer is B though. Answer say lessee go with low tax bracket,and lessor goes with high. Can any one please help with this? I am completely lost with this whole tax benefit thing.
For 67, Capital lease --> higher asset --> higher depreciation. Since Depreciation is tax-deductible Operating lease is the most-used off-balance-financing. Off-balance-financing is to lower liability, for which the statement will show lower business risk( lower leverage), higher liquidity (higher WC, higher interest coverage), higher efficiency (higher asset turnover), and higher growth potential (ROA). That’s pretty enough.
forgot the second half. Since Depreciation is tax-deductible, you got tax benefit from CL.
For 2-AM-111 Since long put plus long stock is equal to a long call position, any price lower than exercise price will generate the same payoff (X-St)+(St-So)-P. Don’t forget the put buyer has spend $60 to buy the stock at time 0.