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"Two companies, Energen and Hastings Corporation, began operations with identical balance sheets. A year later, both required additional...

"Two companies, Energen and Hastings Corporation, began operations with identical balance sheets. A year later, both required additional manufacturing capacity 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 $50,000 capacity for 5 years, and an 8$ retrun was built into the lease. The balance sheet for each company, before the asset increases, follows:
Total Assets $150,000 Total Debt $50,000
Total Equity $100,000
Total Claims $150,000
A. Show the balance sheets for both frims after the asset increases and calculate each firm's new debt ratio. (Assume that the lease is not capitalized.)
B. Show how Hastings's balance sheet would look immediately after the financing if it capitalized the lease.
C. Would the rate of return (1) on assets and (2) on equity be affected by the choice of financing? How?"
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Dear Student, One figure in the previous answer is... View the full answer

CH040410_463055_FIN (1).doc

Answer .a)
Balance Sheet of Energen Corporation
Liabilities
Total Debt (50,000+50,000)
Total Equity
Total Amounts Assets
100,000 Total Assets (150,000+50,000)
100,000
200,000 Total Amounts
200,000...

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