Sample Answer

The availability of tax-exempt debt financing would make leasing less attractive to the Center than before. Here’s why:

• Tax-Exempt Debt Advantages:
  • Tax-exempt debt, typically in the form of municipal bonds, offers significantly lower interest rates than conventional financing. This is because the interest earned by investors is exempt from federal (and sometimes state) income taxes.
  • This lower cost of borrowing makes purchasing assets more affordable.
• Impact on Leasing:
  • Leasing, while offering flexibility and sometimes tax advantages, often comes with higher overall costs compared to purchasing with low-interest financing.
  • When tax-exempt debt is available, the Center can acquire assets at a much lower cost through direct purchase.