Airline CF leases all its aircraft under capital / finance leases. Airline O lea

Question

Airline CF leases all its aircraft under capital / finance leases. Airline O leases all its aircraft under operating leases. Assuming that the two airlines are otherwise identical except for the mentioned lease classifications, which of the following comments is true:

Select one:

a. None of the listed answers

b. When comparing aircraft capitalized on the balance sheet, Airline CF has less than O

c. Airline O has a higher EBITDA margin

d. Airline O has more liabilities

e. Airline CF has lower interest expense

Explanation / Answer

correct option is " A:-none oflisted answers

Reason for other optinon

b)Airline CF will have more capitalized asset on balance sheet as it adopts finance lease in which lease payments are capitalised

c)AirlineO will have lower EBITDA as it charges lease payment as lease expense

d)Airline O have lower liabilities as it uses operating lease .

e)Airline CF has higher interst expense as compare to Airline O as airline CF uses finance lease in which some portion is paid as interest and some as principal amount whereas Airlone O pays all of the payment as lease payment.

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