Please show work (19-2) Consider the data in Problem 19-1. Assume that RC\'s tax

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Please show work

(19-2) Consider the data in Problem 19-1. Assume that RC's tax rate Buy equipment's depreciation would be $100 per year. If the com 40% and that thr leased the he aswe.on I Rb 2- year lease, the payment would be $110 at the beginning of eac and bought, the bank would charge 10% interest on the loan. equipment is worth nothing after 2 years and will be discarded Shoul buy the equipment? ther case, the INTERMEDIATE PROBLEMS 3-4 (19-3) Two companies, Energen and Hastings Corporation, began operations with idenil Balance Sheet balance sheets. A year later, both required additional fixed assets at a cost of s50. Hasting Eff Energen obtained a 5-year, $50,000 loan at an 8% interest rate from its bank. the other hand decided to lease the required S 50,000 capacity for 5 years, and an 8% return was built into the lease. The balance sheet for each company, before the aset increases, follows: ects Current assets Fixed assets Total assets 25,000 125,000 $150,000 Debt Equity Total claims $150,000 s 50,000 100.000 a. Show the balance sheets for both firms after the asset increases, and calculate eac firm's new debt ratio. (Assume that the lease is not capitalized.) b. Show how Hastings's balance sheet would look immediately after the f nancing i capitalized the lease.

Explanation / Answer

Problem :   19-3 (a) Balance sheets of the Firms After Asset Increse Energen Balance sheet (owns new asset with Bank Loan) Amount in $ Amount in $ Current Assets 25000 Debt (50000+$50000) 1,00,000 Fixed Assets (125000+50000) 175000 Equity 100000 Total Assets 200000 Total Claims 2,00,000 Debt ratio = Debt / Equity *100 = $100,000/$200,000 *100 =50% Hastings Corporation Balance sheet ( Lease as Operating Lease) Amount in $ Amount in $ Current Assets 25000 Debt 50,000 Fixed Assets 125000 Equity 100000 Total Assets 150000 Total Claims 1,50,000 Debt ratio = Debt / Equity *100 = $50,000/$150,000 *100 =33.33% (b) Hastings balance sheet after asset aquired through Capitalised lease Hastings Corporation Balance sheet ( Lease as Capitalized Lease) Amount in $ Amount in $ Current Assets 25000 Debt 50,000 Value of Leased Asset 50000 Lease Obligation 50000 Fixed Assets 125000 Equity 100000 Total Assets 200000 Total Claims 2,00,000

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