Suncoast Healthcare is planning to acquire a new x ray machine that costs $200,0

Question

Suncoast Healthcare is planning to acquire a new x ray machine that costs $200,000. The business can either lease the machine using an operating lease or buy it using a loan from a local bank. Suncoast's balance sheet prior to acquiring the machine is a follows:

Current assets: $100,000 --- debt : $400,000

net fixed assets: $900,00 ---- equity: $ 600,000

total assets : $ 1,000,000 --- total claims: $1,000,000

a. what is Suncoast's current debt ratio?

b. what would the new debt ratio be if the machine were leased? if it iss purchased?

c. is the financial risk of the business different under the two asquistition alternatives?

Explanation / Answer

a.Suncoast's current debt ratio = $400,000/($400,000+600,000) =40.00% b. if the machine were leased total assets =$ 1,000,000+ $200,000=$ 1,200,000 debt ratio=$400,000/$ 1,200,000 =33.33% if the machine were purchased total assets =$ 1,000,000+ $200,000=$ 1,200,000 Total debt =$400,000+$200,000=$600,000 debt ratio=$600,000/$ 1,200,000 =50% c. Yes the financial risk of the business is different under the two asquistition alternatives because when the machine is purchase the financial leverage of the company increases to 50%

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.