A Lessee Wants to Lease an Asset on a Long-Term

question 188

Multiple Choice

A lessee wants to lease an asset on a long-term non-cancellable basis,but wants to avoid capitalizing the lease.The lessee is considering several strategies: 1) use a lessee guarantee of residual value;
2) make it impossible for the lessee,who has a very low borrowing rate,to determine the lessor's implicit rate,which is much higher than the lessee's borrowing rate;
3) include a bargain purchase option in the lease agreement;
4) include title transfer in the lease agreement.
Which of the above strategies will provide the desired result?

• A) none
• B) 1 and 3
• C) 1 and 4
• D) 2 and 3
• E) only 2

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Definitions:

Indifference Curve

A graphical representation in microeconomic theory of the combinations of two goods among which a consumer is indifferent.

Midterm Grade

An evaluative score or letter assigned to a student, reflecting their performance halfway through an academic term.

Horizontal Axis

In a graph or chart, the x-axis, representing the independent variable or the basis of comparison across the chart.

Indifference Curves

A graphical representation showing different combinations of two goods among which a consumer is indifferent.