There’s a question that asks - > Compared to holding securitixed finance receivables on the BS, treating them as sold had the effect of reducing Leverage by? We were given the Total Assets and Equity.
In the passage it says " Company sold 267.5 million finance receivables to a SPE. Company does not securtize finance receivables"
LR = A/E – Answer said – had the securitized receivables been held on the BS – assets would have been 267.5 million higher and E unchanged … From here it’s just cacluations…
BUT … If we held them – we would NOT have sold them. When we sold them didn’t our cash increase 267.5 million? IF we had held it instead wouldn’t our Cash decrease by 267.5 and our receivables increase by the same amount – -making total assets the same?
I would’ve had the LR doesn change.