Valores

question 1
a) It can’t be a) because net profit margin is lower if they had been expensed. the expense is for the current period and would hit PNL straight away.
b) It can’t be b) because total asset turnover is higher because capitalising an asset would make total assets go up, which would mean you’re dividing by a higher base.
c) Yes. because the future profit growth will be hampered by depreciation as you capitalised it and added it to the asset base. Expensing means you deal with it right now and nothing else should come about from it.
question 9
a) Jordan is right with a) because the interest cost associated with the repayments will outweight the rental expense. this will wear down as the years go on as interest is less.
b) Jordan is right. because finance assets are brought onto the balance sheet via a liability (the debt they have to pay) and the asset (depreciation expense). this means that solvency ratios will be lower.
c) Jordan is wrong because full rental expense is recognised as OCF while the interest portion of the finance lease is recognised as OCF. the principal payment i think is a result of financing acitivities.