Debt Ration and Financial Risk
Not what you're looking for?
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 as follows:
Current assets : $100,000
Debt : $400,000
Net fixed assets : $900,000
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 is purchased?
c. Is the financial risk of the business different under the two acquisition alternatives?
Purchase this Solution
Solution Preview
a. What is Suncoast's current debt ratio?
Debt ratio= Total debt/Total Assets
=400000/ 1000000
=40%.
b. What would the new debt ratio be if the machine were ...
Purchase this Solution
Free BrainMass Quizzes
Organizational Leadership Quiz
This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.
Basics of corporate finance
These questions will test you on your knowledge of finance.
Cost Concepts: Analyzing Costs in Managerial Accounting
This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.
Production and cost theory
Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.