If the lessor borrows much of the purchase price of a leased asset,the lease is called:
A) a leveraged lease.
B) a sale-and-leaseback.
C) a capital lease.
D) a nonrecourse lease.
E) None of these.

Question

Quizplus · Accepted Answer

A lease in which the lessor (the owner of the asset) borrows a substantial amount of the funds needed to purchase the asset is known as a leveraged lease. This type of lease involves a third party lender who provides funding to the lessor, enabling the lessor to acquire the asset and subsequently lease it to the lessee. The lessor uses the rental payments received from the lessee to repay the loan. Therefore, a leveraged lease allows the lessor to benefit from both the rental payments and the interest earned on the loan, making it an attractive financing option for the lessor.

If the Lessor Borrows Much of the Purchase Price of a Leased