Equipment Finance Please answer the following question also please discuss/explain in brief why is it the correct answer(s) 1 "Companies strive to match the cash outflows with the useful life of the underlying asset(s) and don't generally pay cash upfront for their equipment/machinery." True or False?

a) True b) False

2 When lending is contracted out to a 3rd party, the equipment vendor will receive... Which phrase below completes the sentence correctly?

a) ...the balance from the equipment finance firm prior to the customer's down payment. b) ...a series of future cash flows. c) ...title of the collateral. d) ...the full amount for the equipment up-front.

3 Which of the statements below regarding revolving CAPEX lines and operating lines of credit are correct? (Select all that apply)

a) With a revolving CAPEX facility, borrowing limit is recouped only after a period of time when some of the principal has been repaid via installments. b) Both revolving CAPEX facilities and operating lines of credit provide the borrower with a pre-approved limit from which they can draw any amount (up to cap). c) Both revolving CAPEX facilities and operating lines of credit appear as current liabilities on the borrower's balance sheet. d) A revolving CAPEX line is used to support working capital assets that fluctuate daily.

4 What is the biggest difference between operating leases and capital leases?

a) Capital leases will appear as an expense line item on the income statement, whereas operating leases do not have a lease expense associated. b) A company that uses mostly capital leases will have a balance sheet that appears really asset-light, compared to a business that uses mostly operating leases. c) Operating leases will affect the balance sheet while capital leases don't. d) Operating leases will appear as an expense line item on the income statement, whereas capital leases do not have a lease expense associated.

5 What is the purpose of registering collateral in a public registry? (Select all that apply)

a) To ensure that the asset in question remains in the client's possession in order to continue business operations. b) To ensure that the asset can be pledged as collateral to the same or different lender. c) To ensure that other prospective lenders know that this company has credit outstanding. d) None of the above.

6 "A General Security Agreement (GSA) is a blanket charge over all the assets of a corporation and can be used when a lender provides a revolving CAPEX facility in support of PPE acquisitions and non-current assets." True or False?

a) True b) False

7 For which types of term financing facilities are property registries used? (Select all that apply)

a) Capital leases and term loans b) Operating leases and term loans c) Only leases d) Only term loans

8 Guidelines & policies around loss-given-default (LGD) and recovery rates are location and lender-specific, however, leases generally have ______ LGD compared to term loans. Which word best fits in the blank?

a) A lower b) A higher c) An equal

9 A lender's aggregate exposure is generally higher under a ________ _________ compared to a term loan.

Fill in the blank. (Hint: 2 words)

10 Consider 2 borrowers: Borrower A is a term-loan heavy client, and Borrower B has only capital leases. Both have financed equally priced asset(s). Under what condition could Borrower B's DSCR be greater than Borrower A's?

a) If the lease amortization is shortened by enough to create a smaller current portion of long term lease obligation and offset the higher total loan amount caused by the 100% LTV. b) If, after adjusting the numerator to add back lease expense, the adjusted EBITDA figure is sufficiently high to offset the 100% LTV. c) If the lease amortization is extended by enough to create a smaller current portion of long term lease obligation and offset the higher total loan amount caused by the 100% LTV. d) Borrower B's DSCR can't be greater than Borrower A's under any circumstances.

11 Assuming the identical cost of funds across all borrowing types, how can a capital lease be more profitable than a term loan for the lender?

a) A higher LGD for the lease than the term loan. b) If slightly lower leverage and higher coverage ratios are enough to move the client further on the lender's risk scale, it may decrease the credit spread. c) If slightly higher leverage and lower coverage ratios are enough to move the client further on the lender's risk scale, it may decrease the credit spread. d) A higher recovery rate for the lease than the term loan.

12 Under a 75% LTV term loan structure, when is the balance of funds released by the lender to the vendor?

a) Before the borrower's equity contribution and the delivery of the asset. b) Before the borrower's equity contribution, after delivery of the asset to the borrower. c) After the borrower's equity contribution, before the delivery of the asset to the borrower. d) After the borrower's equity contribution, and preferably after the asset is in the borrower's possession.

13 In which option are the steps to capitalize off-balance sheet obligations given correctly?

a) Adjust the balance sheet to include both a current and long-term portion of debt, reconstruct the income statement by adding lease payment back to Net Income, calculate key lending ratios after all adjustments b) Adjust the balance sheet to include both a current and long-term portion of debt, no adjustments needed in the income statement, calculate key lending ratios after all adjustments c) Adjust the balance sheet to include only a long-term portion of debt, reconstruct the income statement by adding lease payment back to EBITDA, calculate key lending ratios after all adjustments d) Adjust the balance sheet to include both a current and long-term portion of debt, reconstruct the income statement by adding lease payment back to EBITDA, calculate key lending ratios after all adjustments

14 One of the methods used in adjusting the liabilities section of the balance sheet (to analyze Operating Leases) is taking ______ of all future lease payments. Which phrase below completed the sentence correctly?

a) none of the above b) a percentage c) the NPV d) the absolute value

15 If a borrower wanted to pay out a lease before termination, what would they be required to pay?

a) Sum of all future payments b) The principal amount c) Net balance outstanding d) Breakage costs outlined in the contract

16 In a sale-and-leaseback transaction, the borrower turns over ____________ of the asset to the lender, while the asset remains on their ____________. Fill in the blanks. (Hint: last space is 2 words)

17 If time was of some priority and the lender wanted to sell the asset on an as-is basis, what price would they expect to get for it?

a) Fair Market Value b) The price that was originally paid. c) Forced Liquidation Value d) Orderly Liquidation Value

18 What are some of the strategies used to mitigate against non-performance risk in a non-standard lease advance? (Select all that apply)

a) Ensure that your client is working with reputable suppliers and manufacturers. b) Ensure that the client has some other source of cash flow to support interim interest payments. c) Ensure that borrower's equity goes into the deal after the loan proceeds are advanced. d) Require the client to take out an insurance policy.