12) The Ellis Corporation has heavy lease commitments. Prior to SFAS No. 13, it merely footnoted lease obligations in the balance sheet, which appeared as follows: Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. In $ millions In $ millions Current assets $ 60 Current liabilities $ 15 Fixed assets 60 Long-term liabilities 25 Total liabilities $ 40 Stockholders' equity 80 Total assets $ 120 Total liabilities and stockholders' equity $ 120 The footnotes stated that the company had $22 million in annual capital lease obligations for the next 25 years. a. Discount these annual lease obligations back to the present at a 11 percent discount rate. (Do not round intermediate calculations. Round your answer to the nearest million. Input your answer in millions of dollars (e.g., $6,100,000 should be input as "6").) PV of lease obligations $ million b. Construct a revised balance sheet that includes lease obligations. (Do not round intermediate calculations. Round your answers to the nearest million. Input your answer in millions of dollars (e.g., $6,100,000 should be input as "6").) Balance Sheet (In $ millions) Current assets $ Current liabilities $ Fixed assets Long-term liabilities Leased property under capital lease Obligations under capital lease Total liabilities $ Stockholders' equity Total assets $ Total liabilities and Stockholders' equity $ c. Compute the total debt to total asset ratio for the original and revised balance sheets. (Input your answers as a percent rounded to 2 decimal places.) Original % Revised % d. Compute the total debt to total equity ratio for the original and revised balance sheets. (Input your answers as a percent rounded to 2 decimal places.) Original % Revised % e. In an efficient capital market environment, should the consequences of SFAS No. 13, as viewed in the answers to parts c and d, change stock prices and credit ratings? Yes No
This question was answered on: May 23, 2022
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