A lease under which a lessor acts as an equity participant, supplying only about 20 percent of the cost of the asset, while a lender supplies the balance is called a(n)________.
A) operating lease
B) leveraged lease
C) sale-leaseback arrangement
D) direct lease

Question

Quizplus · Accepted Answer

A leveraged lease is a type of lease agreement in which the lessor (the company owning the asset) provides a small portion of the total amount of equity needed to purchase an asset, and the remaining balance is borrowed from a lender. The lender has a lien on the asset being leased, while the leasing company provides day-to-day management. This arrangement allows the lessee (the company using the asset) to benefit from low-cost financing and the tax advantages that come from asset ownership, while the lessor can earn a higher return than if they were solely using their own funds.

A Lease Under Which a Lessor Acts as an Equity