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    Postponing an equipment purchase - What do you think would be better for stockholders?

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    Discuss the effect of postponing an equipment purchase on a company's set of financial statements (do not assume that the postponement would affect revenues or any operating costs other than depreciation and interest). Be sure to include the impact on the company's balance sheet, income statement, and statement of cash flows. Also discuss your opinion as to whether the company should act now or postpone. What do you think would be better for stockholders?

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    Solution Preview

    Please refer to the attached file for the response.

    POSTPONEMENT OF EQUIPMENT PURCHASE

    Equipment purchase may be assumed to have been conceptualized because of certain company needs such as: (1) there is an existing equipment but has not been functioning well or is causing large maintenance cost and energy consumption cost for the company; (2) existing equipment with a capacity that cannot cope with an expected increase in volume of demand; or (3) planned product diversification that necessitates for a new equipment.

    The effects on financial statements and cash flows of the planned postponement of the equipment purchase will then be discussed along each of the three needs or situations cited:

    (1) There is an existing equipment but has not been functioning well or is causing large maintenance cost and energy consumption cost for the company. This would necessitate ...

    Solution Summary

    The following posting discusses why postponing an equipment purchase would be better for stockholders.

    $2.19

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