THE ANSWER IS NOT 0.70 and 0.60 Leasing Connors Construction needs a piece of eq

Question

THE ANSWER IS NOT 0.70 and 0.60

Leasing

Connors Construction needs a piece of equipment that can either be leased or purchased. The equipment costs $250. One option is to borrow $250 from the local bank and use the money to buy the equipment. The other option is to lease the equipment. If Connors chooses to lease the equipment, it would not capitalize the lease on the balance sheet. Below is the company's balance sheet prior to the purchase or leasing of the equipment:

What would be the company's debt ratio if it chose to purchase the equipment? Round your answer to two decimal places.
%

What would be the company's debt ratio if it chose to lease the equipment? Round your answer to two decimal places.
%

Current assets $200 Debt $450 Fixed assets 550 Equity 300 Total assets $750 Total liabilities and equity $750

Explanation / Answer

What would be the company's debt ratio if it chose to purchase the equipment? Round your answer to two decimal places.
Company's debt ratio = Debt/Total liabilities and equity

Company's debt ratio = (450+250)/(750+250)

Company's debt ratio = 70%

What would be the company's debt ratio if it chose to lease the equipment? Round your answer to two decimal places.

Company's debt ratio = Debt/Total liabilities and equity

Company's debt ratio = (450)/(750)

Company's debt ratio = 60%

Note :

Debt Equity Ratio :

if it chose to purchase the equipment

Debt Equity ratio = Debt/Equity

Debt Equity ratio = (450+250)/300

Debt Equity ratio = 233.33%

if it chose to lease the equipment

Debt Equity ratio = Debt/Equity

Debt Equity ratio = 450/300

Debt Equity ratio = 150%

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.