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Please answer all of them even the first one. To consider the financial statement effects of leasing versus purchasing an asset, review the following case
Please answer all of them even the first one.
To consider the financial statement effects of leasing versus purchasing an asset, review the following case of Weghorst Company Weghorst Company needs equipment that will cost the company $800. Weghorst Company is considering to either purchase the equipment by borrowing $800 from a local bank or leasing the equipment. Assume that the lease will be structured as an operating lease. Some data from Weghorst Company's current balance sheet prior to the lease or purchase of the equipment are: Current assets Net fixed assets Total assets Balance Sheet Data (Dollars) $2,400 Debt 1,600 Equity $4,000 Total claims $2,000 2,000 $4,000 1. The company's current debt ratio is 50% 2. If the company purchases the equipment by taking a loan, the total debt in the balance sheet will and the debt ratio will change to 3. If the company leases the equipment, the company's debt ratio will because the lease is not capitalized. 4. In this case, the company's financial risk will be under a lease agreement as compared to the financial risk in purchasing the equipment by taking a loan. 5. However, if the lease is capitalized, the financial risk under the lease agreement will be as compared to the risk in buying the equipmentStep by Step Solution
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