Answer to Question #221001 in Management for sruthi

Question

The finance manager of a company felt that the company is already having a higher debtequity ratio and therefore is considering raising finance through lease and/or hire purchase. Is the decision correct? Justify. 

Answer 1

The decision of the company to raise capital through leasing of its properties or hire purchase is correct simply because, in the company’s financial distress mode, the higher purchase for example suits the company’s needs financially. The reason is that such forms of raising funds are convenient, encourages profit while alleviating saving strategies in the company.