Equipment Rentals borrows money on a nonrecourse basis to fund its purchases of construction equipment. This equipment is then leased to contractors. The leases are classified as tax-oriented leases. Which one of the following terms best describes one of these leases?

Question

Quizplus · Accepted Answer

Tax-oriented leases are typically structured as leveraged leases, which involves the use of debt financing to acquire the equipment. The lessor (in this case, Equipment Rentals) places a down payment and borrows the rest of the purchase price from a lender, and then leases the equipment to the lessee (the contractor). The lease payments from the lessee are used to repay the loan, and the lessor earns a profit from the difference between the lease payments and the loan payments. This type of lease is popular because it offers tax benefits to both the lessor and the lessee.

Equipment Rentals Borrows Money on a Nonrecourse Basis to Fund