Which of the Following Statements Regarding Leases and Bankruptcy Is

question 43

Multiple Choice

Which of the following statements regarding leases and bankruptcy is FALSE?

• A)Operating and true tax leases are generally viewed as true leases by the courts,whereas capital and non-tax leases are more likely to be viewed as a security interest.
• B)By retaining ownership of the asset,the lessor has the right to repossess it if the lease payments are not made,even if the firm seeks bankruptcy protection.
• C)If a lease contract is characterized as a true lease in bankruptcy,the lessor is in a somewhat superior position than a lender if the firm defaults.
• D)If the lease is classified as a true lease in bankruptcy,then the lessee retains ownership rights over the asset.

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Definitions:

Lower Risk

Investments or actions that are considered to have a lower likelihood of resulting in a loss.

Cost of Capital

The rate of return that a company must earn on its investment projects to maintain its market value and attract funds, essentially how much it costs a company to use funds for projects or business activities.

Replacement Projects

Investments made to replace outdated or aged assets to maintain or improve the efficiency of operations.

Expansion Projects

Initiatives undertaken by a company to increase its capacity, sales, or market reach, typically requiring significant investment.