(a)Connors Construction needs a piece of equipment that can either be leased or purchased. The equipment costs...
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Question:
(a)Connors Construction needs a piece of equipment that can either be leased or purchased. The equipment costs $100. One opinion 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 would not capitalize the lease on the balance sheet. Below is the company's balance sheet prior to the purchase or leasing of the equipment.
i)What would be the company's debt ratio if it chose to purchase the equipment?
ii)What would be the company's debt ratio if it chose to lease the equipment?
iii)Would the financial risk be different depending on whether the equipment is leased or purchased?
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