If a firm enters a sale and leaseback agreement,then:
I.the lessee will benefit from an immediate cash inflow.
II.both the lessor and the lessee may benefit if the lessor can benefit more from the tax benefits of ownership than can the lessee.
III.the lease automatically becomes a nonrecourse lease.
IV.the lessee forfeits the right to repurchase the asset at a later date.
A)I and III only
B)II and IV only
C)I and II only
D)II and III only
E)III and IV only

Question

Quizplus · Accepted Answer

I is correct because the sale and leaseback agreement allows the lessee to receive cash inflow by selling the asset and leasing it back.
II is correct because the lessor may benefit more from the tax benefits of ownership, such as depreciation, than the lessee. By selling the asset, the lessor can claim these benefits while the lessee can benefit from the lease payments being tax-deductible.
III is incorrect because a sale and leaseback agreement does not automatically make the lease a nonrecourse lease. It depends on the agreement made between the lessor and the lessee.
IV is incorrect because the lessee may have the option to repurchase the asset at a later date. It depends on the agreement made between the lessor and the lessee.

If a Firm Enters a Sale and Leaseback Agreement,then