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Based on your understanding of leases, which of the following statements are true? A firm with leases instead of long-term loans is likely to appear stronger in a superficial credit analysis. Lessees in general are in relatively higher tax brackets, whereas lessors tend to be in lower tax brackets. A lease contract, in general, gives the lessee the option to buy the leased property at a fair market value. Assets that are likely to have very high expected market values at expiration will tend to have lower costs of leasing.

Answer :

A firm with leases instead of long-term loans is likely to appear stronger in a superficial credit analysis True.

A lease is a legally binding contract that sets out the terms under which one party agrees to lease another party's property. It guarantees the tenant or lessee the use of the property and in return guarantees the owner or landlord regular payments over a period of time.

A lease separates the legal ownership of an asset from its economic use. The title to the asset may or may not pass to the customer at the end of the lease. A contract in which legal title to an asset is transferred directly to the customer at the commencement of the contract is not considered a lease. In the case of leasing the lessee bears lower costs. Lenders also bear the risk of obsolescence.

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