Minetello Construction needs a piece of equipment that costs $40,000. Minetello either can lease the equipment or borrow $40,000 from a local bank and buy the equipment. If the equipment is leased, the lease would not have to be capitalized. Minetello's balance sheet prior to the acquisition of the equipment is as follows:

a. (1) What is Minetello's debt ratio at present?
(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?
b. Would the company's financial risk be different under the leasing and purchasing alternatives?

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Current assets 15,000 Debt Net fixed assets 65,000 Equity Total assets $80,000 Total claims 580,000 $20,000 60,000