Question

The Ellis Corporation has heavy lease commitments. Prior to SFAS No. 13, it merely footnoted lease...

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 $ 85 Current liabilities $ 10 Fixed assets 85 Long-term liabilities 70 Total liabilities $ 80 Stockholders' equity 90 Total assets $ 170 Total liabilities and stockholders' equity $ 170 The footnotes stated that the company had $17 million in annual capital lease obligations for the next 20 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").) 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").) 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.) 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.) 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

Homework Answers

Answer #1
a. PV @6% ,20 years =11.47
present value of lease payments = 17million * 11.47 =194.99 Million
b. The revised balance sheet is as below. ( $In Million)
Current Assets 85 Current Liabilities 10
Fixed Assets 85 Long-term liabilities 70
Leased Property under Capital Lease 194.99 Obligations under capital lease 194.99
Total liabilities 274.99
Stockholders equity 90
Total Assets 364.99 Total liabilities and stockholders equity 364.99
c. Total debt to total assets on original balance sheet = 80/170 = 4375%
Total debt to total assets on revised balance sheet = 274.99/364.99 = 75.34%
d. Total debt to equity on original balance sheet = 80/90 = 88.88%
Total debt to equity on Revised balance sheet = 274.99/90 = 305.54%
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The Ellis Corporation has heavy lease commitments. Prior to SFAS No. 13, it merely footnoted lease...
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 $ 55 Current liabilities $ 10 Fixed assets 55 Long-term liabilities 35 Total liabilities $ 45 Stockholders' equity 65 Total assets $ 110 Total liabilities and stockholders' equity...
The Ellis Corporation has heavy lease commitments. Prior to SFAS No. 13, it merely footnoted lease...
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 $ 65 Current liabilities $ 20 Fixed assets 65 Long-term liabilities 35 Total liabilities $ 55 Stockholders' equity 75 Total assets $ 130 Total liabilities and stockholders' equity...
The Ellis Corporation has heavy lease commitments. Prior to SFAS No. 13, it merely footnoted lease...
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 $ 70 Current liabilities $ 30 Fixed assets 70 Long-term liabilities 30 Total liabilities $ 60 Stockholders' equity 80 Total assets $ 140 Total liabilities and stockholders' equity...
The Ellis Corporation has heavy lease commitments. Prior to SFAS No. 13, it merely footnoted lease...
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 Dfor an approximate answer but calculate your final answer using the formula and financial calculator methods.   In $ millions In $ millions Current assets $ 60 Current liabilities $ 20 Fixed assets 60 Long-term liabilities 30 Total liabilities $ 50 Stockholders' equity 70 Total assets $ 120 Total liabilities and stockholders' equity $...
The Ellis Corporation has heavy lease commitments. Prior to SFAS No. 13, it merely footnoted lease...
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 $ 75 Current liabilities $ 30 Fixed assets 75 Long-term liabilities 40 Total liabilities $ 70 Stockholders' equity 80 Total assets $ 150 Total liabilities and stockholders' equity...
Hedge Row Bank has the following balance sheet (in millions):   Assets $170   Liabilities $102   Equity 68...
Hedge Row Bank has the following balance sheet (in millions):   Assets $170   Liabilities $102   Equity 68   Total $170   Total $170 The duration of the assets is 7 years and the duration of the liabilities is 5.2 years. The bank is expecting interest rates to fall from 10 percent to 9 percent over the next year. a. What is the duration gap for Hedge Row Bank? (Round your answer to 2 decimal places. (e.g., 32.16))   Duration gap years b. What is...
National Bank currently has $2,100 million in transaction deposits on its balance sheet. The current reserve...
National Bank currently has $2,100 million in transaction deposits on its balance sheet. The current reserve requirement is 8 percent, but the Federal Reserve is decreasing this requirement to 6 percent. a. Show the balance sheet of the Federal Reserve and National Bank if National Bank converts all excess reserves to loans, but borrowers return only 50 percent of these funds to National Bank as transaction deposits. (Enter your answers in millions. Do not round intermediate calculations. Round your "Panel...
Jerry Rice and Grain Stores has $4,880,000 in yearly sales. The firm earns 3 percent on...
Jerry Rice and Grain Stores has $4,880,000 in yearly sales. The firm earns 3 percent on each dollar of sales and turns over its assets 2.8 times per year. It has $196,000 in current liabilities and $359,000 in long-term liabilities.     a. What is its return on stockholders’ equity? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)      Return on stockholders' equity %    b. If the asset base remains the same...
Luther Corporation Consolidated Balance Sheet December​ 31, 2006 and 2005​ (in $​ millions) Assets 2006 2005...
Luther Corporation Consolidated Balance Sheet December​ 31, 2006 and 2005​ (in $​ millions) Assets 2006 2005 Liabilities and ​Stockholders' Equity 2006 2005 Current Assets Current Liabilities Cash 62.562.5 58.5 Accounts payable 84.384.3 73.5 Accounts receivable 56.956.9 39.6 Notes payable​ / ​short-term debt 9.29.2 9.6 Inventories 45.845.8 42.9 Current maturities of ​long-term debt 38.538.5 36.9 Other current assets 5.85.8 3.0 Other current liabilities 6.0 12.0                Total current assets 171171 144.0         Total current liabilities 138138 132.0 ​Long-Term Assets ​Long-Term Liabilities   Land 6666...
The Davidson Corporation's balance sheet and income statement are provided here. Davidson Corporation: Balance Sheet as...
The Davidson Corporation's balance sheet and income statement are provided here. Davidson Corporation: Balance Sheet as of December 31, 2018 (Millions of Dollars) Assets Liabilities and Equity Cash and equivalents $ 10    Accounts payable $ 130 Accounts receivable 535    Accruals 280 Inventories 920    Notes payable 210   Total current assets $ 1,465      Total current liabilities $ 620 Net plant and equipment 2,335    Long-term bonds 1,510      Total liabilities $ 2,130    Common stock (100 million shares)...