Which of the following most likely would cause a lease to be classified as a capital lease?

Which of the following most likely would cause a lease to be classified as a capital lease?
a.The lease is for five or more years.
b.The lease is for $1 million or more.
c.The lease permits the lessee to purchase the equipment at the end of the lease for its fair market value.
d.The present value of the lease payments, calculated at the lessee’s typical rate of interest for a similar purchase loan, is more than the original purchase price of the equipment.

Solution