leasing arrangement can actually ________ a firm's borrowing capacity.

Question

Quizplus · Accepted Answer

Leasing allows a firm to acquire assets without actually having to buy them, which means the firm can conserve its cash and preserve its borrowing capacity. Since leasing is not considered a form of debt, it does not appear on the firm's balance sheet as liabilities, which means the firm's debt-to-equity ratio will improve. This will increase the firm's borrowing capacity, allowing it to raise more debt to finance its operations.

Leasing Arrangement Can Actually ________ a Firm's Borrowing Capacity