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 $ 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 $ 110

  
The footnotes stated that the company had $21 million in annual capital lease obligations for the next 20 years.


a. Discount these annual lease obligations back to the present at a 10 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

Homework Answers

Answer #1

As per rules I am answering the first 4 subparts of the question

1:

PV of annuity = Annuity*(1-1/(1+rate)^number of terms)/rate

=21*(1-1/1.1^20)/0.1

=178.78

=179 million

2:

In $ millions

In $ millions

Current assets

$

55

Current liabilities

$

10

Fixed assets

55

Long-term liabilities

35

Leased property under capital leas

179

Obligations under capital lease

179

Total liabilities

$

224

Stockholders' equity

65

Total assets

$

289

Total liabilities and stockholders' equity

$

289

  

3: Original debt/Asset ratio = 45/110

=40.91%

Revised Debt/Asset ratio= 224/289

=77.51%

4:Original Debt/Equity ratio = 45/65

= 69.23%

Revised Debt/Equity = 224/65

= 344.62%

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 $ 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...
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...
Express your answers in strictly numerical terms Round each answer to the third decimal space. A-...
Express your answers in strictly numerical terms Round each answer to the third decimal space. A- "Last Year, a corporation had a book value of equity of $400 million of USDs, 5 million shares outstanding, and a market price of $45 per share. The corporation also had cash of $5 million of USDs, and total debt of $300 million USDs. What was the corporation's market capitalization, in million USDs? Note: Express your answers in strictly numerical terms. " B- "Last...
Owen’s Electronics has nine operating plants in seven southwestern states. Sales for last year were $100...
Owen’s Electronics has nine operating plants in seven southwestern states. Sales for last year were $100 million, and the balance sheet at year-end is similar in percentage of sales to that of previous years (and this will continue in the future). All assets (including fixed assets) and current liabilities will vary directly with sales. The firm is working at full capacity. Balance Sheet (in $ millions) Assets Liabilities and Stockholders' Equity Cash $ 11 Accounts payable $ 16 Accounts receivable...
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...
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...
Owen’s Electronics has nine operating plants in seven southwestern states. Sales for last year were $100...
Owen’s Electronics has nine operating plants in seven southwestern states. Sales for last year were $100 million, and the balance sheet at year-end is similar in percentage of sales to that of previous years (and this will continue in the future). All assets (including fixed assets) and current liabilities will vary directly with sales. The firm is working at full capacity. Balance Sheet (in $ millions) Assets Liabilities and Stockholders' Equity Cash $ 12 Accounts payable $ 22 Accounts receivable...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT