Construction Accounting And Financial Management (4th Edition)
4th Edition
ISBN: 9780135232873
Author: Steven J. Peterson MBA PE
Publisher: PEARSON
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Textbook Question
Chapter 6, Problem 41P
The construction company in Figures 2-2 and 2-3 needs to lease an excavator. The company has the option to lease it with an operating lease or a capital lease with a present value of $150,000 Using the spreadsheet you developed in Problem 40, determine how each of these leases affects the company’s financial ratios. Which lease option would you chose? Why?
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To consider the financial statement effects of leasing versus purchasing an asset, review the following case of Hack Wellington Company
Hack Wellington Company needs equipment that will cost the company $560. Hack Wellington Company is considering to either purchase the
equipment by borrowing $560 from a local bank or leasing the equipment. Assume that the lease will be structured as an operating lease.
Some data from Hack Wellington Company's current balance sheet prior to the lease or purchase of the equipment are:
Balance Sheet Data
(Dollars)
Current assets
$2,940
Debt
$1,680
Net fixed assets
1,260
Equity
2,520
Total assets
$4,200
Total claims
$4,200
1. The company's current debt ratio is
2. If the company purchases the equipment by taking a loan, the total debt in the balance sheet will
and the debt ratio will change to
3. If the company leases the equipment, the company's debt ratio will
because the lease is not capitalized.
under a lease agreement as compared to the finandial…
RENT Connors Construction requires a large number of leased equipment to be purchased. The equipment costs $ 100. One option is to borrow $ 100 from a local bank and use it to purchase the equipment. Another option is a statement of the company's financial position before buying or renting equipment is shown as follows: Current assets Fixed assets Total assets $ 300 Debt 500 Equity $ 800 Liabilities and total equity $ 400 400 $ 800 What is the company's debt ratio if you decide to buy equipment? What if the lease and lease are not stipulated in the report's financial position? Is the financial risk of pecusalom different if you buy it rented? Explain.
Chapter 6 Solutions
Construction Accounting And Financial Management (4th Edition)
Ch. 6 - When calculating a ratio with numbers from the...Ch. 6 - How does the method of depreciation affect...Ch. 6 - How does retention affect the financial ratios?...Ch. 6 - Prob. 4PCh. 6 - Prob. 5PCh. 6 - Determine the current liabilities to net worth...Ch. 6 - Determine the debt to equity ratio for the...Ch. 6 - Prob. 8PCh. 6 - Determine the current assets to total assets ratio...Ch. 6 - Prob. 10P
Ch. 6 - Determine the average age of accounts payable and...Ch. 6 - Determine the assets to revenues ratio for the...Ch. 6 - Prob. 13PCh. 6 - Prob. 14PCh. 6 - Determine the gross profit margin for the...Ch. 6 - Determine the general overhead ratio for the...Ch. 6 - Prob. 17PCh. 6 - Prob. 18PCh. 6 - Determine the pretax return on equity and...Ch. 6 - Determine the degree of fixed asset newness for...Ch. 6 - Prob. 21PCh. 6 - Prob. 22PCh. 6 - Prob. 23PCh. 6 - Prob. 24PCh. 6 - Prob. 25PCh. 6 - Prob. 26PCh. 6 - Prob. 27PCh. 6 - Determine the average age of accounts payable and...Ch. 6 - Prob. 29PCh. 6 - Prob. 30PCh. 6 - Determine the accounts payable to revenues ratio...Ch. 6 - Determine the gross profit margin for the...Ch. 6 - Determine the general overhead ratio for the...Ch. 6 - Prob. 34PCh. 6 - Determine the pretax return on assets and...Ch. 6 - Determine the pretax return on equity and...Ch. 6 - Prob. 37PCh. 6 - Determine the months in backlog using the work on...Ch. 6 - Determine the months in backlog using the work on...Ch. 6 - The construction company in Figures 2-2 and 2-3...Ch. 6 - Prob. 43CP
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