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Current assets Debt $350 $300 400 Equity Total liabilities and equity Fixed assets 350 Total assets $700 $700

Current assets Debt $350 $300 400 Equity Total liabilities and equity Fixed assets 350 Total assets $700 $700

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Cordell Construction needs a piece of equipment that can be leased or
purchased. The equipment costs $100. One option is to borrow $100 from the local bank
and use the money to buy the equipment. The other option is to lease the equipment. The
company’s balance sheet prior to the equipment purchase or lease is shown below:

What would be the company’s debt ratio if it chose to purchase the equipment? What
would be the company’s debt ratio if it leased the equipment and it could keep the lease
off its balance sheet? Is the company’s financial risk any different whether the equipment
is leased or purchased? Explain.

Current assets Debt $350 $300 400 Equity Total liabilities and equity Fixed assets 350 Total assets $700 $700
Transcribed Image Text:Current assets Debt $350 $300 400 Equity Total liabilities and equity Fixed assets 350 Total assets $700 $700
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