Question

24)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 $ millionsIn $ millions  Current assets$  70    Current liabilities$  25    Fixed assets 70    Long-term liabilities 40              Total liabilities$  65       Stockholders’ equity 75        Total assets$ 140    Total liabilities and
    stockholders’ equity$ 140      The footnotes stated that the company had $24 million in annual capital lease obligations for the next 15 years.  a.Discount these annual lease obligations back to the present at a 6 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?

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