Which of the Following Statements Is Most CORRECT

question 3

Multiple Choice

Which of the following statements is most CORRECT?

• A) Capitalizing a lease means that the firm issues equity capital in proportion to its current capital structure,in an amount sufficient to support the lease payment obligation.
• B) The fixed charges associated with a lease can be as high as,but never greater than,the fixed payments associated with a loan.
• C) Capital,or financial,leases generally provide for maintenance by the lessor.
• D) A key difference between a capital lease and an operating lease is that with a capital lease,the lease payments provide the lessor with a return of the funds invested in the asset plus a return on the invested funds,whereas with an operating lease the lessor depends on the residual value to realize a full return of and on the investment.
• E) Firms that use "off balance sheet" financing,such as leasing,would show lower debt ratios if the effects of their leases were reflected in their financial statements.

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Definitions:

Negotiation

The process of discussing terms between parties to reach a mutual agreement or resolve differences.

Arbitration

A method of dispute resolution where an impartial third party, called an arbitrator, makes a decision to resolve a dispute outside of court.

Private Civil Trial

Trials run according to the same rules of procedure and evidence as trials run under the official auspices of the court. In a private trial, the parties can hold the trial when and where they choose, and they can choose the judge. Lengthy civil cases are well-suited to this approach.

Retired Judge

A former judge who has ended their official career on the bench but may still perform certain judicial duties on a temporary or part-time basis.