The Following Are Dubious Reasons for Leasing

question 1

Multiple Choice

The following are dubious reasons for leasing:
I. leasing avoids capital expenditure controls
II. leasing preserves capital
III. leasing can make the firm's balance sheet and income statement look better by increasing book income or decreasing book assets or both
IV. avoiding the alternative minimum tax

• A) I and II only
• B) I, II and III only
• C) I, II, III and IV
• D) I, II and IV only

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Definitions:

Asymmetric Information

A situation where one party in a transaction has more or superior information compared to another, often leading to an imbalance in the transaction.

Small Firms

Businesses often characterized by a small number of employees, limited market share, and possibly locally oriented markets.

Principal-Agent Problem

A situation in economics where there is a conflict of interest between a principal (such as a shareholder) and an agent of the principal (such as a manager), due to the agent having more information.

Golden Parachute

A substantial benefits package given to top executives if the company is taken over by another firm, and the executives are terminated as a result of the takeover.