Leasing

Connors Construction needs a piece of equipment that can be leased or purchased. The equipment costs $150. One option is borrow $150 from the local bank and use the money to buy the equipment. The other option is to lease the equipment. The company's balance sheet prior to the equipment purchase or lease is shown below:

Current assets$400 Dept $800

Fixed assets 800 Equity 400

Total assets $1,200 Total liabilities and equity$1,200

A. What would the company's debt ratio if it chose to purchase the equipment? Round your answer to one decimal.

The company's debt ratio is________________________%?

B. What would be the company's debt ratio if it leased the equipment and it could keep the lease off its balance sheet_____________? Round your answer to one decimal.

C.If the company leases the asset and does not capitalize the lease, its debt ratio is______________________%?

D. Is the company's financial risk any different whether the equipment is leased or purchased? Explain.

E. The company's financial risk is__________________________?