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:

Sociocultural

Relating to the combination of social and cultural factors that influence an individual's behavior and attitudes.

Psychological

Pertaining to the mind or mental processes and how they affect behavior and well-being.

Perceived Risk

The consumer's subjective assessment of the potential negative outcomes of purchasing a product or service.

Physical Harm

Damage or injury inflicted on a person's body, as opposed to damage to property or reputation.