Considering either purchasing or leasing an asset

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Reference no: EM131936194

Tiffany’s is considering either purchasing or leasing an asset that costs $28,000, has a 6-year life, and a zero salvage value. The firm has a 35 percent tax rate and a borrowing rate of 7 percent. The firm can lease the asset for five years with lease payments of $4,500 payable the first of each year. This lease would be classified as a(n):

capital lease because the lease term is greater than 75 percent of the economic life.

leveraged lease because it is being financed with debt.

operating lease because the asset life is less than 10 years.

operating lease because there is no cost reduction.

sale and leaseback arrangement because Tiffany’s obtains full use of the asset.

Reference no: EM131936194

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