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:

Fixed Input

An input whose quantity does not change with the level of output in the short run.

Marginal Product

The additional output that is produced by using one more unit of a variable input, holding all other inputs constant.

Variable Input

An input in the production process that varies with the level of output, such as labor or raw materials.

Marginal Product

The increase in output resulting from a one-unit increase in the use of a particular input, while holding other inputs constant.