If a lessor borrows money on a nonrecourse basis to purchase an asset that will be leased to another party,then:
A)the lessor is responsible for the payments on the borrowed funds whether or not the lessee pays the lease payments.
B)the lessee must pay both the lease payment and the loan payment.
C)the loan is considered paid in full if the lessee discontinues making the lease payments or terminates the lease early.
D)the lessor is only obligated to make loan payments as long as the lessor is collecting the lease payments.
E)the lessor must pursue the lessee if the lessee fails to make the agreed upon lease payments.

Question

Quizplus · Accepted Answer

In a non-recourse loan, the lender can only seek payment from the collateral (the asset being leased), and not from the borrower (the lessor). Therefore, the lessor is only obligated to make loan payments as long as the lessor is collecting the lease payments. If the lessee discontinues making the lease payments or terminates the lease early, the lessor can sell the collateral to pay off the loan, but the lessor will not be responsible for any remaining balance on the loan.

If a Lessor Borrows Money on a Nonrecourse Basis to Purchase