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 $400,000 finance lease.If you go through with the lease,what will be your firm's new debt-equity ratio?
A)0.63
B)0.50
C)1.27
D)0
E)1.0

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 $400,000 finance lease.If you go through with the lease,what will be your firm's new debt-equity ratio?
A)0.63 
B)0.50 
C)1.27 
D)0 
E)1.0

Quizplus · Accepted Answer

To calculate the new debt-equity ratio, we need to add the finance lease amount of $400,000 to the current total liabilities of $1,800,000.

Total Liabilities (including finance lease) = $1,800,000 + $400,000 = $2,200,000

Equity = $2,500,000

Debt-Equity Ratio = Total Liabilities / Equity = $2,200,000 / $2,500,000 = 0.88

Therefore, the new debt-equity ratio would be 0.88, which is closest to answer choice C (1.27).

Use the Table for the Question(s)below