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Two textile companies McDanielEdwards Manufacturing and Jordan Hocking Mills began operations with identical balance sheets A year later both required additional manufacturing capacity at a cost

Two textile companies, McDaniel-Edwards Manufacturing and Jordan-Hocking Mills, began operations with identical balance sheets. A year later both required additional manufacturing capacity at a cost of $300,000. McDaniel-Edwards obtained a 5-year, $250,000 loan at an 8% interest rate from its bank. Jordan-Hocking, on the other hand, decided to lean the required $250,000 capacity from National Leasing for 5 years; an 8% return was build into the lease. The balance sheet for each company, before the asset increase, is as follows:

    Debt $300,000
    Equity $250,000
Total assets $550,000 Total liabilities and equity $550,000

Show the balance sheet of each firm after the assets, and calculate each firm's new debt ratio. (Assume that Jordan-Hocking's lease is kept off the balance sheet.) Round your answers to the whole number.

Debt/assets ratio for McDaniel-Edwards =___ %

Debt/assets ratio for Jordan-Hocking = ___ %

Show how Jordan-Hocking's balance sheet would have looked immediately after the financing if had capitalized the lease. Round your answer to the whole number.

 

Aug 23 2020 View more View Less

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