Chapter 25, Problem 5P

Your firm is considering leasing a $50,000 copier. The copier has an estimated economic life of eight years. Suppose the appropriate discount rate is 9% APR with monthly compounding. Classify each lease below as a capital lease or operating lease, and explain why:

1. a. A four-year fair market value lease with payments of $1150 per month
2. b. A six-year fair market value lease with payments of $790 per month
3. c. A five-year fair market value lease with payments of $925 per month
4. d. A five-year fair market value lease with payments of $1000 per month and an option to cancel after three years with a $9000 cancellation penalty