Final answer:
A company with sales less than the indifferent point should opt for an operating lease because it involves lower monthly payments without maintenance costs, providing financial flexibility and reducing financial risk.
Step-by-step explanation:
If a company's sales are less than the indifferent point, the preferred type of lease is an operating lease. An operating lease is a lease agreement that allows for the use of an asset but does not convey rights similar to ownership of the asset.
With an operating lease, the lessee pays for the use of the asset for a specific period, which is typically shorter than the asset's economic life.
This option is particularly suitable for companies with lower sales since it involves lower monthly payments and typically does not include maintenance costs, providing greater flexibility and less financial burden than a capital lease.
Capital leases, on the other hand, are more like financing arrangements where the lessee has the option to purchase the asset at the end of the lease term.
A closed-end lease and an open-end lease relate to vehicle leases primarily and are about whether the lessee is responsible for the residual value of the leased asset at the end of the term.
With lower sales and presumably lower cash flow, an operating lease provides a means to access equipment without significant capital outlay, reducing the financial risk for the business.