Question

What is a risk of an operating lease when compared to a finance lease?
- Higher administration costs
- No depreciation can be claimed
- Must provide maintenance
- Must provide insurance

A company is evaluating methods of raising capital to fund a massive new IT infrastructure
project.
Which financing strategy includes costs that could be deducted on the company’s corporate
tax return?

- Authorizing new shares of common stock
- Issuing corporate bonds
- Issuing a new series of preferred stock
- Reinvesting company profits

How does a company’s marginal tax rate affect the interest rate of debt?
- It raises the after-tax interest rate.
- It lowers the before-tax interest rate.
- It lowers the after-tax interest rate.
- It raises the before-tax interest rate

What is an advantage of combining outsourcing of inventory with a just-in-time inventory
system?

- Reduces inventory levels
- Easier to predict demand
- Easier to adjust reorder amount
- More Efficient use of redline method

Answer 1

Risks of operating lease :

Sinc,there is no transfer of ownershio but the leased asset is in the custody of the lessess, the lessee needs to ensure that he pays for all the maintenance expenses.

So, the correct option is option C.

By the issue of corporate bonds, a company can reduce the taxable income on the tax rerurns.

So, the correct option is option B.

Th dividends paid on the preference shares is not tax deductible and the issue of equity shares leads to equity dilution and no favourable tax treatments.

The marginal tax rate reduces the after tax cost of debt,

= Cost of debt * (1 - tax rate)

So, the correct option is option C.

By combining the just in time inventory with outsourcing inventory:

The advantage is thar it reduces the invemtory level.

Outsourcing of inventory means not producing the inventory in house , but outsourcing it. Just in time means the location of the suppliers near the factories where where actual production takes place, this ensures that the inventory and the supplies are timely delivered.

So, the correct option is option A.