Governmental Entities Enter into Capital Leases, Rather Than Conventional Buy

question 16

Multiple Choice

Governmental entities enter into capital leases, rather than conventional buy and borrow arrangements for which of the following reasons? Capital leases

• A)May be an effective means of circumventing debt limitations.
• B)Are less expensive overall than buy and borrow arrangements.
• C)Reduce the cash outflows related to the asset acquisition.
• D)Have less effect on governmental fund balances than buy and borrow arrangements.

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Definitions:

Capital Investment Proposals

Plans or suggestions for allocating resources towards long-term assets in hopes of gaining future returns.

Salvage Value

The approximate remaining value of an asset when it reaches the end of its operational lifespan.

Total Income

The sum of all revenues and gains a company receives before any expenses are deducted.

Net Cash Flows

The difference between cash inflows and outflows over a period.