CONCEPTS REVIEW AND CRITICAL THINKING QUESTIONS 1. Leasing versus Borrowing LO2] What are the key differences between leasing and borrowing? Are they perfect substitutes? 2. Leasing and Taxes [LO3] Taxes are an important consideration in the leasing de- cision. Who is more likely to lease, a profitable corporation in a high tax bracket or a less profitable one in a low tax bracket? Why? 3. Leasing and IRR [LO3) What are some of the potential problems with looking at IRRs in evaluating a leasing decision? 4. Leasing [LO2] Comment on the following remarks: a. Leasing reduces risk and can reduce a firm's cost of capital. b. Leasing provides 100 percent financing. c. If the tax advantages of leasing were eliminated, leasing would disappear. Accounting for Leases [L01) Discuss the accounting criteria for determining whether or not a lease must be reported on the balance sheet using the accounting rules in place before 2019. In each case, give a rationale for the criterion. 6. IRS Criteria [L01] Discuss the IRS criteria for determining whether or not a lease is tax deductible. In each case, give a rationale for the criterion