Which of the Following Statements Concerning Guaranteed Residual Values Is

question 32

Multiple Choice

Which of the following statements concerning guaranteed residual values is appropriate for the lessee?

• A) The asset and related liability should be increased by the amount of the residual value.
• B) The asset and related liability should be decreased by the amount of the residual value.
• C) The asset and related liability should be decreased by the present value of the residual value.
• D) The asset and related liability should be increased by the present value of the residual value.

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Definitions:

Personal Leverage

The use of borrowed funds by an individual to increase the potential return of investment.

NPV

Net Present Value; a method used in capital budgeting to evaluate the profitability of an investment or project, comparing the value of all cash inflows and outflows over time, discounted back to their present value.

Indirect Bankruptcy Costs

The costs associated with bankruptcy that are not directly related to legal or administrative expenses, such as lost sales, customers, or suppliers.

Financial Leverage

Employing debt to boost the potential earnings from an investment.