Which of the Following Explains Why Reducing Leverage Through Off-Balance

question 19

Multiple Choice

Which of the following explains why reducing leverage through off-balance sheet financing is not a valid argument for leasing?

• A) Whether they appear on the balance sheet or not, lease commitments are liabilities for the firm.
• B) For most large corporations, the amount of leverage the firm can obtain through a lease is unlikely to exceed the amount of leverage the firm can obtain through a loan.
• C) Some companies may place limits on the dollar amounts a manager can invest over a certain period.
• D) All of the above are reasons why reducing leverage through off-balance sheet financing is not a valid argument for leasing.

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Definitions:

NPV

The calculation used to find the current value of future cash flows minus initial investments, which helps in evaluating the feasibility of investments or projects.

Credit Policy

The guidelines a company follows to determine creditworthiness, terms of credit, and how to collect owed money, affecting its trade credit and financing approaches.