12)

The Ellis Corporation has heavy lease commitments. Prior toSFAS No. 13, it merely footnoted lease obligations in the balance sheet, which appeared as follows: UseAppendix 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	$ 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 ofSFASNo. 13, as viewed in the answers to partscandd,change stock prices and credit ratings?
	Yes No