Use the table for the question(s) below.
Luther Industries currently has the following balance sheet (in Thousands of dollars):
Luther is about to add a new fleet of delivery trucks. The price of the fleet is $1.5 million.
-If Luther acquires the new fleet of delivery trucks using a capital lease, Luther's debt-to-equity ratio will be closest to ________.
A) 0.66
B) 1.5
C) 0.80
D) 2.0

Question

Use the table for the question(s) below.
Luther Industries currently has the following balance sheet (in Thousands of dollars):
  Luther is about to add a new fleet of delivery trucks. The price of the fleet is $1.5 million.
-If Luther acquires the new fleet of delivery trucks using a capital lease, Luther's debt-to-equity ratio will be closest to ________.
A) 0.66 
B) 1.5 
C) 0.80 
D) 2.0

Quizplus · Accepted Answer

D) If the firm acquires the fleet through a capital lease it is the same as if Luther borrowed the money and purchased the fleet directly. The fleet is must be listed as an asset and the lease will show up as a liability. Therefore, Luther's balance sheet will look like:
 11ea84dc_f4a4_e4eb_9a63_1f46fd56f01f_TB1316_00_TB1316_00 Luther's Debt-to-Equity ratio therefore is equal to 11ea84dc_f4a4_e4ec_9a63_1936e7afd3d5_TB1316_11_TB1316_11 = 2.0

Use the Table for the Question(s) Below