Question
Leasing Connors Construction needs a piece of equipment that can be leased or purchased. The equipment costs $100. One option is borrow $100 from the
Leasing
Connors Construction needs a piece of equipment that can be leased or purchased. The equipment costs $100. One option is borrow $100 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 | $350 | Dept | $700 |
Fixed assets | 700 | Equity | 350 |
Total assets | $1,050 | Total liabilities and equity | $1,050 |
What would the company's debt ratio if it chose to purchase the equipment? Round your answer to one decimal.
The companys debt ratio is %.
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.
If the company leases the asset and does not capitalize the lease, its debt ratio is %.
Is the company's financial risk any different whether the equipment is leased or purchased? Explain.
The company's financial risk is
.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started