CLFP Lease Structuring & Pricing

Question 1

What is the 'implicit rate' (or lessor's rate) in a lease transaction?

Accepted Answer

The internal rate of return that equates the present value of all lease payments and residual value to the equipment's fair value

Answer

The interest rate quoted by the lessee's bank

Answer

The prime rate plus a spread determined by credit rating

Answer

The rate used to calculate MACRS depreciation

Question 2

How does a higher assumed residual value affect the lessee's periodic lease payment?

Accepted Answer

It lowers the periodic payment because less of the equipment cost needs to be recovered through payments

Answer

It increases the periodic payment because residual risk is higher

Answer

It has no effect on the payment amount

Answer

It increases payments because insurance costs rise with residual

Question 3

What is a 'flat payment' (level payment) lease structure?

Accepted Answer

A lease with equal periodic payments throughout the term, making budgeting easy for the lessee

Answer

A lease with no interest component—only principal

Answer

A lease where all payments are made in one lump sum

Answer

A lease with payments that decrease each period

Question 4

What is a 'skip payment' lease structure?

Accepted Answer

A structure where certain periods (often seasonal months) have no payment due, accommodating businesses with seasonal cash flows

Answer

A lease that automatically skips payments after a default

Answer

A structure allowing the lessee to defer any payment once per year

Answer

A lease with payments only in the first and last months

Question 5

What is 'yield' in the context of equipment lease pricing?

Accepted Answer

The internal rate of return (IRR) the lessor earns on its investment, considering all cash flows including tax benefits

Answer

The annual interest rate printed on the lease agreement

Answer

The lessee's return on investment from using the equipment

Answer

The rate of equipment value decline over the lease term

Question 6

What is a 'balloon payment' structure in equipment financing?

Accepted Answer

A structure with lower periodic payments followed by one large final payment at the end of the term

Answer

A structure that starts with a large payment and decreases over time

Answer

Equal payments with an additional insurance premium at end

Answer

A loan that converts to a lease at maturity