A Full Payout Lease is defined as:

A Full Payout Lease is defined as:

• A. Realize investments over the stream of payments; no reliance on residual
• B. Reliance on residual value is primary
• C. Lease term equals asset life
• D. Leaser transfers ownership automatically

Answer: (A)

In a full payout lease, the investment is recouped through the series of lease payments itself, with little or no reliance on what the asset will be worth at the end of the term. The lessor expects to recover the full cost of the asset and earn a return entirely from these payments, rather than depending on a high residual value to realize profit. This distinguishes it from arrangements where the end-of-term value (the residual) drives the economics. The other scenarios aren’t defining features of a full payout lease. Relying on residual value as the primary source of return would describe a structure where the end value is the key driver, which isn’t the case here. Automatic ownership transfer at the end or a lease term exactly equal to the asset’s life aren’t essential elements of a full payout lease either—they may occur in some leases, but they don’t define this type.

In a full payout lease, the investment is recouped through the series of lease payments itself, with little or no reliance on what the asset will be worth at the end of the term. The lessor expects to recover the full cost of the asset and earn a return entirely from these payments, rather than depending on a high residual value to realize profit. This distinguishes it from arrangements where the end-of-term value (the residual) drives the economics.

The other scenarios aren’t defining features of a full payout lease. Relying on residual value as the primary source of return would describe a structure where the end value is the key driver, which isn’t the case here. Automatic ownership transfer at the end or a lease term exactly equal to the asset’s life aren’t essential elements of a full payout lease either—they may occur in some leases, but they don’t define this type.