FI516_Homework5_BrianLin - Brian Lin D01278742 Week 5...

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Brian Lin D01278742 Week 5 Homework Chapter 18 Questions Problem 18-3 Two companies, Energen and Hastings Corporation, began operations with identical balance sheets. A year later, both required additional fixed assets at a cost of $50,000. Energen obtained a 5-year, $50,000 loan at an 8% interest rate from its bank. Hastings, on the other hand, decided to lease the required $50,000 capacity for 5 years, and an 8% return was built into the lease. The balance sheet for each company, before the asset increases, follows: Current Assets $25,000 Debt $50,000 Fixed Assets 125,000 Equity 100,000 Total Assets $150,000 Total Claims $150,000 a. Show the balance sheets for both firms after the asset increases, and calculate each firm’s new debt ratio. (Assume that the lease is not capitalized.) Energen Balance Sheet Current Assets $25,000 Debt $50,000 Fixed Assets 175,000 Equity 100,000 Total Assets $200,000 Loan 50,000 Total Claims $200,000 Debt:Assets = 50% Hastings Corporation Balance Sheet Current Assets
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FI516_Homework5_BrianLin - Brian Lin D01278742 Week 5...

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