Connors Construction needs a piece of equipment that can be leased or purchased. The equipment costs $100.

Question:

Connors 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. If Connors chooses to lease the equipment, it will not capitalize the lease on the Following is the company’s prior to the purchase or leasing of the equipment.
Current assets……………………………….$300
Fixed assets…………………………………..500
Total assets………………………………….$800
Debt………………………………………...$400
Equity………………………………………..400
Total liabilities and equity………………….$800
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 chose to lease the equipment? Would the company’s financial risk be different depending on whether the equipment was leased or purchased? Explain. Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...