To consider the financial statement effects of leasing versus purchasing an asset, review the following case of Hack Wellington Company

Hack Wellington Company needs equipment that will cost the company $560. Hack Wellington Company is considering to either purchase the equipment by borrowing $560 from a local bank or leasing the equipment. Assume that the lease will be structured as an operating lease.

Some data from Hack Wellington Companys current balance sheet prior to the lease or purchase of the equipment are:

Balance Sheet Data
(Dollars)
Current assets	$2,940	Debt	$1,680
Net fixed assets	1,260	Equity	2,520
Total assets	$4,200	Total claims	$4,200
1.	The companys current debt ratio is A. 40% B.32% C. 67% D. 57%
2.	If the company purchases the equipment by taking a loan, the total debt in the balance sheet will A. increase B. decrease and the debt ratio will change to . A. 35% B. 53% C. 47% D. 123%
3.	If the company leases the equipment, the companys debt ratio will A. unchanged B. increase C. decrease because the lease is not capitalized.
4.	In this case, the companys financial risk will be A. less B. more 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 A. the same B. more as compared to the risk in buying the equipment.