On January $1,2021,$ Hickory Corporation signs a noncancelable contract in which it agrees to lease a piece of non$-$specialized manufacturing equipment to Penzey Products. Specific details related to the lease are as follows:

The lease has a $3-$year term with no renewal option.

Penzey is required to make a payment of $$287,432$ to Hickory on January $1$ of each year in the lease term, beginning January $1,2021.$

As of January $1,2021,$ the machine's fair value is $$950,000.$ The machine has an estimated economic life of $10$ years and no expected salvage value.

Upon termination of the lease, the machine reverts to Hickory Corporation.

Penzey depreciates all of its machinery on a straight$-$line basis.

Penzey's incremental borrowingrate is $10\%$ per year. The firm is not aware of the $8\%$ implicit rate used by Hickory.

From Hickory's point of view, this agreement would be classified as a$($n$)$

finance lease.

operating lease.

direct$-$financing lease.

sales$-$type lease.