In a Lease Arrangement, When There Is a Default of Payment

question 129

True/False

In a lease arrangement, when there is a default of payment on the part of the lessee, the resultant effect is that the bank/lessor faces systematic risk, which in turn may lead to credit risk.

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Definitions:

Long-term Debt Ratio

A financial ratio that shows the proportion of a company’s long-term debt compared to its total assets.

Total Debt

Refers to the sum of all financial obligations (short-term and long-term liabilities) owed by an individual or entity.

Net Cash

The amount of cash that is available after all debts, expenses, and operational costs have been deducted.

Financing Activity

Transactions and events that affect long-term liabilities and equity of an entity, such as issuing shares or obtaining long-term loans.