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Which of the following statements is most CORRECT?...




Which of the following statements is most CORRECT? 1. Capital, or financial, leases generally provide for maintenance by the lessor. 2. 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. 3. 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. 4. 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. 5. The fixed charges associated with a lease can be as high as, but never greater than, the fixed payments associated with a loan.


Paper#10241 | Written in 18-Jul-2015

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