Leaseback

    graph TD;
	    A[Asset Sold] --> B[Cash Injection];
	    B --> C[Lease Payments];
	    C --> D[Cash Outflow];

## What is a primary benefit of a sale-leaseback arrangement? - [x] It allows liquid capital access while maintaining asset use. - [ ] It eliminates the need for insurance. - [ ] It guarantees appreciation in asset value. - [ ] It increases debt on the balance sheet. > **Explanation:** Sale-leaseback arrangements allow companies immediate access to cash while retaining operational control of the asset, hence linking liquidity without immediately increasing debt. ## In a leaseback agreement, who are the parties involved? - [x] Lessee (tenant) and Lessor (landlord) - [ ] Only the seller - [ ] Only the buyer - [ ] The government and the seller > **Explanation:** A leaseback arrangement involves both the lessee and lessor. The seller later becomes the tenant renting back the asset. ## What type of asset is typically used in leaseback transactions? - [ ] Only real estate properties - [ ] Only cash-generating assets - [ ] Any asset, including equipment and property - [x] Both real estate and other tangible assets > **Explanation:** Leasebacks can involve various asset types, including real estate, machinery, and equipment. ## True or False: A sale-leaseback is considered a loan. - [ ] True - [x] False > **Explanation:** A sale-leaseback is not classified as a loan; it is a sale agreement followed by a lease, which may also impact capital raising differently than a traditional loan would. ## Which financial statement are lease payments reflected on? - [ ] Balance Sheet - [ ] Statement of Cash Flows - [x] Income Statement - [ ] Statement of Changes in Equity > **Explanation:** Lease payments appear on the income statement under operational expenses, affecting the company’s net income. ## What happens if a company defaults on its lease payments? - [ ] They can keep operating as usual - [x] The lessor can initiate eviction or repossession - [ ] The lease becomes void instantly - [ ] They receive a fine but keep going > **Explanation:** If a company defaults, the lessor has the right to enforce the lease terms which could lead to eviction. ## Are sale-leaseback agreements regarded as high-risk investments? - [ ] Yes, generally they are considered high risk - [ ] Not at all, they are risk-free - [x] It depends on the credit status of the lessee - [ ] Always, since they deal with large sums > **Explanation:** The risk of a leaseback agreement depends principally on the creditworthiness of the lessee, higher risk if the lessee is financially unstable. ## Can leasebacks help businesses balance their cash flows? - [ ] No, they worsen cash flow issues - [ ] Yes, but only in a recession - [x] Yes, as it increases available cash while downscaling liabilities - [ ] Only in technology companies > **Explanation:** Leasebacks can improve cash flow by converting illiquid assets into cash, hence alleviating potential liquidity issues. ## Is it financially valid to repeatedly engage in sale-leaseback transactions? - [ ] No, only one such transaction is allowed - [ ] Yes, but only for tangible assets - [ ] Only tech companies can do this - [x] Yes, as long as the financials support it. > **Explanation:** Companies can engage in multiple sale-leasebacks as long as it aligns with their financial strategies and doesn’t spiral into cash flow problems. ## What should a company consider before entering a leaseback agreement? - [ ] The price of coffee - [x] The short and long-term financial impact - [ ] The number of employees - [ ] Their vacation plans > **Explanation:** Companies must assess the overall financial implications to ensure the transaction fits into their strategic goals and liquidity management.