Direct Leasing, Sale and Leaseback, and Leveraged Leasing

B

A direct lease, a sale and leaseback, and a leveraged lease are all examples of financial leases.

A financial lease is a type of lease in which the lessee (the person or entity acquiring the leased asset) assumes most of the risks and rewards associated with the ownership of the leased asset. In a financial lease, the lessee typically maintains the leased asset on its balance sheet and is responsible for its maintenance, insurance, and taxes.

Let's break down each example:

1. Direct Lease: In a direct lease, the lessee enters into a lease agreement directly with the lessor (the owner of the asset). The lessee obtains the right to use the asset for a specified period in exchange for lease payments. The direct lease allows the lessee to have full control and use of the asset, while the lessor retains legal ownership. This type of lease is commonly used for long-term financing of assets such as equipment or vehicles.

2. Sale and Leaseback: A sale and leaseback transaction involves the sale of an asset by the owner (the seller) to a buyer, who then leases the asset back to the original owner. This allows the original owner to free up capital tied up in the asset while retaining the use of it through the lease agreement. The buyer becomes the lessor, and the original owner becomes the lessee. The leaseback arrangement is typically a financial lease, where the lessee assumes the risks and benefits of ownership.

3. Leveraged Lease: A leveraged lease is a type of lease in which the lessor (the owner of the asset) borrows a significant portion of the funds needed to purchase the asset. The lessor contributes a smaller portion of the total cost and leases the asset to a lessee. The lease payments from the lessee are used to repay the borrowed funds. In a leveraged lease, both the lessor and the lessee typically have a stake in the success of the lease arrangement, as they share the risks and rewards of the investment.

Based on the above explanations, it is clear that all three examples (direct lease, sale and leaseback, and leveraged lease) involve financial leases. Financial leases are characterized by the lessee assuming significant risks and rewards associated with ownership, and often involve long-term financing arrangements. Therefore, the correct answer to the question is B. Financial leases.