Two textile companies, McDaniel-Edwards Manufacturing and Jordan-Hocking Mills,
ID: 2735980 • Letter: T
Question
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, $250,000 loan at an 8% interest rate from its bank. Jordan-Hocking, on the other hand, decided to lean the required $250,000 capacity from National Leasing for 5 years; an 8% return was build into the lease. The balance sheet for each company, before the asset increase, is as follows:
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.
Debt/assets ratio for McDaniel-Edwards =___ %
Debt/assets ratio for Jordan-Hocking = ___ %
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.
Debt $300,000 Equity $250,000 Total assets $550,000 Total liabilities and equity $550,000Explanation / Answer
Debt/ assets ratio ( Edward)= 300000/550000
= 0.54
Debt assets ratio = 550000/800000 = 0.6875
Balance sheet for Jordan Total Assets 550000 Debt 300000 Equity 250000 Total Laibilities & Equity 550000 Balance sheet for Edward Total Assets 800000 Debt 550000 Equity 250000 Total Laibilities & Equity 800000Related Questions
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