company leases the following asset:• Fair value of $200,000.• Useful life of 5 years with no salvage value.• Lease term is 4 years.• Annual lease payment is $30,000 and the lease rate is 11%.• The company’s overall borrowing rate is 9.5%.• The firm can purchase the equipment at the end of the lease period for $45,000.What type of lease is this?a. Operating.b. Capital.c. Financing.d. Long term.
company leases the following asset:• Fair value of $200,000.• Useful life of 5 years with no salvage value.• Lease term is 4 years.• Annual lease payment is $30,000 and the lease rate is 11%.• The company’s overall borrowing rate is 9.5%.• The firm can purchase the equipment at the end of the lease period for $45,000.What type of lease is this?a. Operating.b. Capital.c. Financing.d. Long term.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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company leases the following asset:
• Fair value of $200,000.
• Useful life of 5 years with no salvage value.
• Lease term is 4 years.
• Annual lease payment is $30,000 and the lease rate is 11%.
• The company’s overall borrowing rate is 9.5%.
• The firm can purchase the equipment at the end of the lease period for $45,000.
What type of lease is this?
a. Operating.
b. Capital.
c. Financing.
d. Long term.
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