Bluesy Enterprises needs to purchase a new machine that costs $300. Bluesy can either lease the machine or borrow $300 from a local bank and buy the machine. If the machine is leased, the lease would not have to be capitalized. Bluesy's balance sheet prior to the acquisition of the machine is as follows: • • Current assets: $400 Net fixed assets: $600 • Total assets: $1,000 • Debt: $500 • Equity: $500 Total claims: $500 (1) What is Bluesy's current debt ratio? (2) What would be the company's debt ratio if it purchased the machine?

Bluesy Enterprises needs to purchase a new machine that costs $300. Bluesy can either lease the machine or borrow $300 from a local bank and buy the machine. If the machine is leased, the lease would not have to be capitalized. Bluesy's balance sheet prior to the acquisition of the machine is as follows: • • Current assets: $400 Net fixed assets: $600 • Total assets: $1,000 • Debt: $500 • Equity: $500 Total claims: $500 (1) What is Bluesy's current debt ratio? (2) What would be the company's debt ratio if it purchased the machine?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter19: Lease Financing

Section: Chapter Questions

Problem 1P: Reynolds Construction (RC) needs a piece of equipment that costs 200. RC can either lease the...

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Reynolds Construction (RC) needs a piece of equipment that costs $200. RC can either lease the equipment or borrow $200 from a local bank and buy the equipment. Reynolds's balance sheet prior to the acquisition of the equipment is as follows: Current assets: $300 Debt: $400 Net Fixed Assets: 500 Equity: 400 Total assets: 800 Total claims: 800 a. (1) What is RC's current debt ratio? (2) What would be the company's debt ratio if it purchased the equipment? (3) What would be the debt ratio if the equipment were leased and the lease was not capitalized? (4) What would be the debt ratio if the equipment were leased and the lease were capitlaized? Assume that the present value of the lease payments is equal to the cost of the equipment. b. Would the company's financial risk be different under the leasing and purchasing alternatives?
Reynolds Construction (RC) needs a piece of equipment that costs 200. RC can either lease the equipment or borrow 200 from a local bank and buy the equipment. Reynoldss balance sheet prior to the acquisition of the equipment is as follows: a. (1) What is RCs current debt ratio? (2) What would be the companys debt ratio if it purchased the equipment? (3) What would be the debt ratio if the equipment were leased and the lease not capitalized? (4) What would be the debt ratio if the equipment were leased and the lease were capitalized? Assume that the present value of the lease payments is equal to the cost of the equipment. b. Would the companys financial risk be different under the leasing and purchasing alternatives?
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V6. A company purchases land, building and equipment for $1,500,000. An independent appraisal shows that the best available indications of fair value at the time of purchase are: land: $760,000; building: $540,000; and equipment: $320,000. The purchase is financed through long-term debt. Required: Prepare the journal entry to record the purchase Prepare the journal entry to record the purchase:
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