Question

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 $ 140 The footnotes stated that the company had $14 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").)
**

**b.** Construct a revised balance sheet that includes
lease obligations. **(Do not round intermediate calculations.
Round your answers to the nearest million. Input your answers 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. **(Do not round
intermediate calculations. 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. **(Do not round
intermediate calculations. 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 |

Answer #1

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 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 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 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...

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...

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 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...

Jerry Rice and Grain Stores has $4,430,000 in yearly sales. The
firm earns 2 percent on each dollar of sales and turns over its
assets 4.5 times per year. It has $167,000 in current liabilities
and $342,000 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.)
b. If the asset base remains the same as
computed in part a, but total...

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...

The following table gives abbreviated balance sheets and income
statements for Starbucks. At the end of fiscal 2014, Starbucks had
748 million shares outstanding with a share price of $81.25. The
company's weighted-average cost of capital was about 9%. Assume a
tax rate of 35%. Balance Sheet End of Year Start of Year Assets
Current assets: Cash and marketable securities 1,844 3,234 Accounts
receivable 948 839 Inventories 1,091 1,111 Other current assets 285
288 Total current assets 4,169 5,471 Fixed...

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