Capital Structure and Corporate Financing Decisions: Theory, Evidence, and Practice

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ANSWERS TO CHAPTER DISCUSSION QUESTIONS 471

4. Although the cases speak sometimes of duties to various constituencies, the

value of the firm is simply the sum of the value of equity and debt. Hence,

maximizing one necessarily means the maximization of the other. This means

that the courts are speaking about the same thing.

CHAPTER 22 THE LEASE VERSUS BUY DECISION

1. Smith and Wakeman (1985) describe some of the unique provisions in lease con-

tracts including (1) deposits and penalty clauses; (2) restrictions on subleasing

and use; (3) service versus net lease; (4) metering and tie-in sales; and (5) options

to extend or purchase or cancel. Schallheim (1994) provides a list of popular rea-

sons for leasing of which many are dubious when subjected to careful scrutiny of

economic logic. According to Schallheim (p. 15), one strong economic reason is

that “equipment leasing provides customized financing with potentially unique

tax features.” He also describes eight factors that determine lease payments and

shows how lease contracts can be divided into eight general categories. These

categories include the terms of the lease payments, equipment procurement and

delivery, use and maintenance, obligations at expiration, warranties and default

procedures, among others. The uniqueness of a lease contract derives from the

interaction among these categories. Another unique feature of leasing is the

treatment of the lessor ...