Balance Sheet Effects

Two companies, Energen and Hastings Corporation, began operations with identical balance sheets. A year later, both required additional fixed assets at a cost of $75,000. Energen obtained a 5-year, $75,000 loan at an 8% interest rate from its bank. Hastings, on the other hand, decided to lease the required $75,000 capacity for 5 years, and an 8% return was built into the lease. The balance sheet for each company, before the asset increases, follows:

Current assets	$ 25,000		Debt	$ 50,000
Fixed assets	125,000		Equity	100,000
Total assets	$150,000		Total claims	$150,000

Show the balance sheets for both firms after the asset increases, and calculate each firm's new debt ratio assuming that the lease is not capitalized. Round the monetary values to the nearest dollar and percentage values to the nearest whole number.

Energen Corporation Balance Sheet (Owns new assets)
Current assets	$ _____		Debt	$ _______
Fixed assets	_______		Equity	_______
Total assets	$ _______		Total claims	$ _______

Debt ratio: _______%

Hastings Corporation Balance Sheet (Leases as operating lease)
Current assets	$ _______		Debt	$ _______
Fixed assets	_______		Equity	_______
Total assets	$ _______		Total claims	$ _______

Debt ratio: _______ % Show how Hastings's balance sheet would look immediately after the financing assuming the lease is capitalized. Round the monetary values to the nearest dollar and percentage value to the nearest whole number.

Hastings Corporation Balance Sheet (Capitalizes lease)
Current assets	$ _______		Debt	$ _______
Value of leased asset	_______		PV of lease payments	_______
Fixed assets	_______		Equity	_______
Total assets	$ _______		Total claims	$ _______

Debt ratio: _______%