If a firm treats a lease as an operating lease rather than a finance (i.e. capital) lease, what is the effect on return on equity (ROE) in the first year of the lease?

A ROE is the same under an operating lease and a finance lease.

B ROE under an operating lease will be lower compared to a finance lease.

C ROE under an operating lease will be higher compared to a finance lease.

When fixed coupon bonds are issued at a discount:

A coupon interest paid decreases each period as bond discount is amortized.

B pre-tax earnings of the firm decrease over the life of the bond as the bond discount is amortized.

C book value of the bond liability decreases over the life of the bond as the bond discount is amortized.

A firm issues a $5 million zero coupon bond with a maturity of four years when market rates are 8 percent. Assuming semiannual compounding periods, the total interest expense on this bond is:

A $0.

B $1,346,549.

C $1,600,000.