Question
1. Which of the following statements is most CORRECT? a. Capitalizing a lease means that the firm issues equity capital in proportion to its current
1. Which of the following statements is most CORRECT?
|
| a. | Capitalizing a lease means that the firm issues equity capital in proportion to its current capital structure, in an amount sufficient to support the lease payment obligation. |
|
| b. | The fixed charges associated with a lease can be as high as, but never greater than, the fixed payments associated with a loan. |
|
| c. | Capital, or financial, leases generally provide for maintenance by the lessor. |
|
| d. | A key difference between a capital lease and an operating lease is that with a capital lease, the lease payments provide the lessor with a return of the funds invested in the asset plus a return on the invested funds, whereas with an operating lease the lessor depends on the residual value to realize a full return of and on the investment. |
|
| e. | Firms that use "off balance sheet" financing, such as leasing, would show lower debt ratios if the effects of their leases were reflected in their financial statements.
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started