Use the table for the question(s)below.

-Consider the above balance sheet for your firm (in thousands of dollars).You plan on acquiring some new equipment using a $700,000 finance lease.If you go through with the lease,what will be the change in your firm's debt-equity ratio?
A)0.44
B)0.56
C)0
D)0.80
E)1.69

Question

Use the table for the question(s)below.
 
-Consider the above balance sheet for your firm (in thousands of dollars).You plan on acquiring some new equipment using a $700,000 finance lease.If you go through with the lease,what will be the change in your firm's debt-equity ratio?
A)0.44 
B)0.56 
C)0 
D)0.80 
E)1.69

Quizplus · Accepted Answer

The finance lease will increase both the firm's liabilities (debt) and assets by $700,000. The debt-equity ratio is calculated as total debt divided by total equity. The increase in debt will affect the ratio, and the change is calculated as the increase in debt ($700,000) divided by the existing equity. The change in the debt-equity ratio is 0.44.

Use the Table for the Question(s)below