Suppose Your Firm Is Planning on Obtaining $750,000 of New

Multiple Choice

Suppose your firm is planning on obtaining $750,000 of new equipment using a four-year fair market value lease,and the equipment has a remaining useful life of 7 years.If the monthly lease payments are $12,000 and the appropriate discount rate is 8% APR with monthly compounding,will the lease be classified as an operating lease or a finance lease for the lessee?

A) Finance lease,because the title to the property transfers to the lessee at the end of the lease term.
B) Finance lease,because the present value of the minimum lease payments at the start of the lease is substantially all of the asset's fair value.
C) Operating lease,because the present value of the minimum lease payments at the start of the lease is less than substantially all of the asset's fair value.
D) Operating lease,because the lease term is for the major part of the estimated economic life of the asset.
E) Finance lease,because the lease term is for the major part of the estimated economic life of the asset.