A Capital Lease, as Compared to an Operating Lease, Has

question 126

Multiple Choice

A capital lease, as compared to an operating lease, has a higher likelihood of which of the following?

• A) default payment
• B) violation of loan covenants
• C) stronger ratios
• D) higher overall expenses

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Definitions:

Variable Cost

A variable cost is an expense that varies depending on a company's production volume; they rise as production increases and fall as production decreases.

NPV

An alternate expression for Net Present Value, it represents the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Credit Policy

A set of guidelines a company follows to determine the creditworthiness of its customers and the terms of credit it will offer.

Contingent Demand

Demand for a product or service that depends on the demand for another product or service.