Term Loan and Leasing

A __________ is charged by the lender to hold credit open for the borrower.

• commitment fee

• medium-term note

• revolving credit agreement

• tax fee

Ritchie Company wants to acquire a new atom-smashing machine at a cost of $1 million that will have a nine-year useful life. The asset falls into the seven year MACRS property class for depreciation purposes. At the end of its useful life, the firm anticipates a residual value of $200,000. The firm can borrow the funds needed with a seven-year loan amortized at 14% annually (payments include both principal and interest and are paid at the beginning of each year). There is lease financing available at a cost of $150,000 annually (all nine years) due at the beginning of each year. Assume that the firm is in a 40% marginal tax bracket. Which type of financing is preferred?

• Debt financing

• Lease financing

• Revolving credit agreement financing

• Equipment financing

Which of the following is not a type of financial lease arrangement?

• Sale and leaseback

• Indirect leasing

• Leveraged leasing

• All of the above answers are types of financial lease arrangements.

Periodic/regular payment is called____ while while balloon payments is called_____

• lump sum, amortized,

• cash, lump sum

• amortized, lump sum

• lump sum, cash

Cost in term loan are

• interest rate, legal cost, and commitmen fee all paid by the lender

• interest rate, legal cost, and commitmen fee all paid by the borrower

• interest rate, legal cost, and commitmen fee paid by the lender and borrower in 50:50

• interest rate paid by the lender, while legal cost, and commitmen fee paid by the borrower

if the need is getting smaller, the borrower can adjust the size of the loan in the middle of the payment. This is a benefit of____

• Equipment financing and leverage

• Equipment financing and term loan

• Term loan and revolving credit agreement

• Insurance company term loan and medium term loan

1. Uncertain condition of macroeconomic

2. Uncertain amount of fund needed

By using that information, lender is better using___

• Insurance loan

• Equipment financing

• Revolving credit agreement

• Medium term note

1. Maturity is more than 7 years

2. Interest rate here is bigger than bank interest rate

3. Prepayment penalty

4. Calculating cost, risk, and benefit

These informations refer to

• Long term loan

• Medium term note

• Equipment loan

• Insurance company term loan

In______, If the payment of the debt has been completed with the expiration of the contract, the lender continues to make offers continuously to the borrower

• Short term note

• Long term note

• Medium term note

• Equipment term note

The lender must push the borrower to make borrower's financial condition at least reaches the minimum profit but at the end of the day, if the borrower is unable to pay the debt, the lender can take action. This term is known as

• Loan agreement and provision

• Covenant and loan agreement

• Covenant and provision

• All answer is true