Problem:

A company desires to replace its current plant equipment with new equipment that costs $10,000,000. One possibility would be for the company to issue $10,000,000 of bonds and use the proceeds to purchase the equipment. Another possibility would be for the company to raise $10,000,000 by issuing common stock. And a third possibility is to acquire the use of the equipment by signing a long-term capital lease with a leasing company.

Required:

Question: Describe and compare the financial statement effects along with the relative advantages and disadvantages of these alternatives. Which approach would you choose?

Note: Be sure to show how you arrived at your answer.