Debt Displacement Is Associated with Leases Because

question 32

Multiple Choice

Debt displacement is associated with leases because:

• A) all assets not purchased with equity use debt financing.
• B) debt is always a cheaper source of financing and preferred to equity financing.
• C) FASB 13 and the IRS mandate debt displacement.
• D) lease financing is all debt and causes an imbalance in the optimal debt to equity ratio which reduces future debt financing.
• E) None of these.

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Definitions:

Negotiable Installment Notes

Debt instruments that promise repayments in a series of payments and are transferable to others.

Finance Companies

Businesses that provide loans to individuals or corporations, excluding banks and other traditional financial institutions.

Forgery

The act of fraudulently making, altering, or falsifying a document or other object with the intent to deceive or defraud.

Real Defense

Legal defenses that can be used to invalidate a claim in a contract or to nullify the contract itself.