Sizzler's Is Considering Either Purchasing or Leasing an Asset That

question 52

Multiple Choice

Sizzler's is considering either purchasing or leasing an asset that costs $28,000,has a life of 6 years,and a zero salvage value.The firm has a tax rate of 21 percent and a borrowing rate of 7 percent.The firm can lease the asset for five years with lease payments of $4,500 payable the first of each year.This lease would be classified as a(n) :

• A)operating lease because the asset life is less than 10 years.
• B)operating lease because there is no cost reduction.
• C)leveraged lease because it is being financed with debt.
• D)capital lease because the lease term is greater than 75 percent of the economic life.
• E)sale and leaseback arrangement because Sizzler's obtains full use of the asset.

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Definitions:

Exercise Price

The specified price at which the holder of an option can buy (call) or sell (put) the underlying asset.

Stock Splits

A corporate action that increases the number of a company's outstanding shares by dividing each share, which typically reduces its share price but does not affect the company's overall market capitalization.

Exercise Price

The predetermined price at which the holder of an option can buy (call) or sell (put) the underlying asset.

Split Factor

A term used in finance to describe the ratio by which a company's existing shares are divided into a larger number of shares, affecting a stock's price by making it more affordable without changing the company's market capitalization.