Problem 20 4 Balance sheet effects of leasing Two textile companies, McDaniel Edwards Manufacturing and Jordan Hocking Mills, began operations with identical balance sheets A year later, both required additional manufacturing capacity at a cost of $225,000 McDaniel Edwards obtained a 5 year, $225,000 loan at an 9 interest rate from its bank Jordan Hocking, on the other hand, decided to lease the required $225,000 capacity from National Leasing for 5 years an 9 return was built into the lease The balance sheet for each company, before the asset increases, is as follows Debt $200,000 Equity 200,000 Total assets $400,000 Total liabilities and equity $400,000 Show the McDaniel Edwards' balance sheet after the asset increase Round your answers to two decimal places Debt 1 $ Equity 2 $ Total assets 3 $ Total liabilities and equity 4 $ Calculate McDaniel Edwards' new debt ratio Round your answer to two decimal places 5 Show the Jordan Hocking's balance sheet after the asset increase (Assume lease is kept off the balance sheet ) Round your answers to two decimal places Debt 6 $ Equity 7 $ Total assets 8 $ Total liabilities and equity 9 $ Calculate Jordan Hocking's new debt ratio Round your answers to two decimal places 10 Show how Jordan Hocking's balance sheet would have looked immediately after the financing if it had capitalized the lease Round your answers to two decimal places Assets 11 $ Debt 12 $ Value of leased asset 13 $ PV of lease payments 14 $ Equity 15 $ Total assets 16 $ Total liabilities and equity 17 $

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Problem 20-4 Balance sheet effects of leasing Two textile companies, McDaniel-Edwards Manufacturing and Jordan-Hocking Mills, began operations with identical balance sheets. A year later, both

Problem 20-4 Balance sheet effects of leasing

Two textile companies, McDaniel-Edwards Manufacturing and Jordan-Hocking Mills, began operations with identical balance sheets. A year later, both required additional manufacturing capacity at a cost of $225,000. McDaniel-Edwards obtained a 5-year, $225,000 loan at an 9% interest rate from its bank. Jordan-Hocking, on the other hand, decided to lease the required $225,000 capacity from National Leasing for 5 years; an 9% return was built into the lease. The balance sheet for each company, before the asset increases, is as follows:

		Debt	$200,000
		Equity	200,000
Total assets	$400,000	Total liabilities and equity	$400,000

Show the McDaniel-Edwards' balance sheet after the asset increase. Round your answers to two decimal places.

		Debt	1. $
		Equity	2. $
Total assets	3. $	Total liabilities and equity	4. $

Calculate McDaniel-Edwards' new debt ratio. Round your answer to two decimal places. 5. %

Show the Jordan-Hocking's balance sheet after the asset increase. (Assume lease is kept off the balance sheet.) Round your answers to two decimal places.

		Debt	6. $
		Equity	7. $
Total assets	8. $	Total liabilities and equity	9. $

Calculate Jordan-Hocking's new debt ratio. Round your answers to two decimal places. 10. %

Show how Jordan-Hocking's balance sheet would have looked immediately after the financing if it had capitalized the lease. Round your answers to two decimal places.