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.

Question

Quizplus · Accepted Answer

This statement correctly identifies a key difference between a capital lease and an operating lease. With a capital lease, the lessor is guaranteed to receive a return of and on their investment through the lease payments, while with an operating lease, they depend on the residual value of the asset.

Which of the Following Statements Is Most CORRECT