When a firm establishes a long-term contract with another firm where a firm acquires an asset such as a machine or a building through a rental agreement, this is a:
A) standard supply contract.
B) joint venture.
C) lease contract.
D) franchise agreement.

Question

Quizplus · Accepted Answer

A lease contract is a long-term agreement where the lessee (the firm) acquires the right to use an asset owned by another firm (the lessor) for a specific period of time in exchange for periodic rental payments. This type of agreement commonly applies to assets such as buildings or machinery, where it is more cost-effective for the lessee to rent the asset rather than owning it outright. Therefore, a lease contract is the most appropriate option in this scenario.

When a Firm Establishes a Long-Term Contract with Another Firm