medium · Investment Banking accounting
If a company decides to purchase an asset using 100% debt rather than leasing it via an operating lease, which of the following is true about its Income Statement?
- There is no impact on the Income Statement; only Cash Flow and Balance Sheet accounts change.
- Operating Income (EBIT) will be higher because interest is excluded from EBIT, while rent is included.
- Net Income will likely be higher in year one since the asset's depreciation is a non-cash charge.
- EBITDA will be lower because the company must now recognize new depreciation expense on the purchased asset.
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