Branson Incorporated Is Considering Leasing Equipment

question 66

Essay

Branson Incorporated is considering leasing equipment. It can either lease the equipment for five or ten years. The five-year lease allows Branson to classify the lease as an operating lease. However, the ten-year lease requires Branson to classify the lease as a capital lease. Branson is operating under a debt covenant that sets a maximum on its debt/equity ratio. If Branson is close to violating this debt covenant, which lease contract would you advise Branson to sign? Why?

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Definitions:

Negative Impact

Adverse effects or consequences that result from a particular action or set of conditions.

Alertness

The state of being awake, aware, and attentive, often in response to stimuli or as part of normal consciousness.

Sleep Terrors

Episodes of screaming, intense fear, and flailing while still asleep, often paired with difficulty fully waking up, occurring predominantly in children.

Parasomnias

A group of sleep disturbances characterized by unusual actions, feelings, sensations, or dreams that appear during the process of falling asleep, throughout the sleep period, in transitions between stages of sleep, or upon waking.