Which of the Following Statements Regarding Capital Leases Is False

question 37

Multiple Choice

Which of the following statements regarding capital leases is false?

• A) Because capital leases increase the apparent leverage on the firm's balance sheet, firms sometimes prefer to have a lease categorized as an operating lease to keep it off the balance sheet.
• B) The firm does not report the present value of the future lease payments as a liability on the balance sheet.
• C) The asset acquired is listed on the lessee's balance sheet, and the lessee incurs depreciation expenses for the asset.
• D) They are viewed as an acquisition for accounting purposes.

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Definitions:

Annual Coupon

The yearly interest payment made to bondholders, expressed as a percentage of the bond's face value.

Bond-Yield-Plus-Risk-Premium

A method of estimating the cost of equity by adding a risk premium to the observed yield of a company’s long-term debt.

WACC

An assessment of a firm's cost of capital, where each category of capital is proportionally weighted to calculate the average cost.

Marginal Costs

Marginal costs refer to the change in total cost that arises when the quantity produced is incremented by one unit.