NOTE: These multiple choice questions require present value information. Rudolph Corporation manufactures Christmas decorations and supplies throughout the world. The company owns property, plant, and equipment and also enters into operating leases for certain facilities. Assume that Randolph's incremental borrowing rate is 8%. The company's tax rate is 40%. Listed below is selected financial data for Rudolph and a portion of the company's operating lease footnote.
Assuming that Rudolph Corporation was required to capitalize its operating lease how would the company's fixed asset ratio change under this assumption.
A) increase
B) decrease
C) no effect
D) unable to determine

Question

NOTE: These multiple choice questions require present value information. Rudolph Corporation manufactures Christmas decorations and supplies throughout the world. The company owns property, plant, and equipment and also enters into operating leases for certain facilities. Assume that Randolph's incremental borrowing rate is 8%. The company's tax rate is 40%. Listed below is selected financial data for Rudolph and a portion of the company's operating lease footnote.
  Assuming that Rudolph Corporation was required to capitalize its operating lease how would the company's fixed asset ratio change under this assumption.
A) increase 
B) decrease 
C) no effect 
D) unable to determine

Quizplus · Accepted Answer

If Rudolph Corporation was required to capitalize its operating lease, the leased property would be added to the fixed assets on the balance sheet and the company's fixed asset ratio would decrease.

NOTE: These Multiple Choice Questions Require Present Value Information