Eleven Inc. is considering purchasing or leasing a new equipment that costs $5,600,000. If Eleven purchases the equipment, it would then borrow the needed capital from BLP Bank at 8% annual interest rate. Elevens current total assets and equity amounts are equal to $25,860,000 and $10,750,000 respectively.

1. Which of the following statements is CORRECT? *

6 points

a. If the machine is purchased, Elevens new debt ratio will be equal to 34.17%, which is higher by 7.40% than its current one.

b. If the machine is purchased, Elevens new debt ratio will be equal to 41.57%, which is lower by 7.40% than its current one.

c. If the machine is purchased, Elevens new debt ratio will be equal to 65.83%, which is higher by 7.40% than its current one.

d. If the machine is purchased, Elevens new debt ratio will be equal to 58.43%, which is lower by 7.40% than its current one.

e. None of the above

2. Assume that the firm decides to lease the machine instead of buying it, also assume that the lease is not capitalized, which of the following is CORRECT? *

6 points

a. After the lease, the debt ratio of Eleven will be higher than its current one.

b. After the lease, the debt ratio of Eleven will be lower than its current one.

c. After the lease, the debt ratio of Eleven will be higher than its debt ratio after the purchase.

d. After the lease, the debt ratio of Eleven will be lower than its debt ratio after the purchase.

e. None of the above