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

Question:

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 prior to the equipment purchase or lease is shown below:

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

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

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...

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