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$300,000.McDaniel-Edwards obtained a 5-year,$250,000loan at an6%interest rate from its bank. Jordan-Hocking, on the other hand, decided to lean the required$250,000capacity from National Leasing for 5 years; an6%return was build into the lease. The balance sheet for each company, before the asset increase, is as follows:

Debt$300,000Equity$250,000Total assets$550,000Total liabilities and equity$550,000

1. Show the balance sheet of each firm after the assets, and calculate each firm's new debt ratio. (Assume that Jordan-Hocking's lease is kept off the balance sheet.) Round your answers to the whole number.
2. Debt/assets ratio for McDaniel-Edwards =%
3. Debt/assets ratio for Jordan-Hocking =%
4. Show how Jordan-Hocking's balance sheet would have looked immediately after the financing if had capitalized the lease. Round your answer to the whole number.
5. %
6. Would the rate of return (1) on assets and (2) on equity be after by the choice of financing? If so, how?
7. The input in the box below will not be graded, but may be reviewed and considered by your instructor.