Santa Corporation NOTE: These multiple choice questions require present value information.
Santa 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 Santa's incremental borrowing rate is 8%.The company's tax rate is 40%.Listed below is selected financial data for Santa and a portion of the company's operating lease footnote.
Assuming that Santa 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

Santa Corporation NOTE: These multiple choice questions require present value information.
Santa 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 Santa's incremental borrowing rate is 8%.The company's tax rate is 40%.Listed below is selected financial data for Santa and a portion of the company's operating lease footnote.
  Assuming that Santa 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

Capitalizing the operating lease would increase the company's fixed assets, which would decrease the fixed asset ratio.

Santa Corporation NOTE: These Multiple Choice Questions Require Present Value