pon rate of 9% and $50 milll8N UI TIUbonds have the same maturity. Because the convertible issue has the lower coupon uthit less risky than the nonconvertible bond? Would you regard the cost of capital as e, is• DotKit might appear at first glance that the convertible's cost of capital is lower, this ighnecessarily the case, because the interest rate on the convertible understates its true otThink about this.)LEASING Cordell Construction needs a piece of equipment that can be leased orpurchased. The equipment costs $100. One option is to borrow $100 from the local bankand use the money to buy the equipment. The other option is to lease the equipment. Thecompany's balance sheet prior to the equipment purchase or lease is shown below:20-1Current assets$300Debt$350Fixed assets400Equity350Total assets$700Total liabilities and equity$700What would be the company's debt ratio if it chose to purchase the equipment? Whatwould be the company's debt ratio if it leased the equipment and it could keep the leaseoff its balance sheet? Is the company's financial risk any different whether the equipmentis leased or purchased? Explain.WARRANTS Rubash Company recently issued two types of bonds. The first issue consied of 20-year straight (no warrants attached) bonds with a 9% annual coupon. The secoissue consiste20-2

To Determine: The debt ratio of the company if it prefer to buy the equipment, the debt ratio of the…

Answered: purchased. The equ:

purchased. The equ:

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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