(a) Covenants vs. Guarantees:

• Covenants: Covenants are specific conditions or promises that borrowers agree to uphold as part of a loan agreement. These may include financial ratios or restrictions that must be maintained to avoid default.
• Guarantees: Guarantees are a commitment by a third party to repay the loan or meet obligations if the borrower defaults. Unlike covenants, guarantees provide a form of security to lenders.

(b) Reasons and Benefits of Share Repurchase:

• Reasons:
  1. To improve earnings per share by reducing the number of outstanding shares.
  2. To return surplus cash to shareholders.
  3. To prevent hostile takeovers by reducing available shares.
• Benefits:
  1. Enhanced shareholder value by increasing stock price.
  2. Increased financial ratios such as EPS and ROE.
  3. Strengthened control by consolidating ownership.

(c) Features of a Finance Lease Arrangement:

1. Long-Term Commitment: Typically spans most of the asset’s useful life.
2. Ownership Remains with Lessor: The lessor retains ownership throughout the lease term.
3. Non-Cancelable: The lessee usually cannot cancel the lease before expiry.
4. Residual Value Obligation: The lessee may be responsible for the residual value at the lease end.
5. Asset and Liability Recognition: Lessee records both an asset and a liability in their financial statements.
6. Full Payment Commitment: The lessee is responsible for payments covering the asset’s entire cost and interest.