Question 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 nal answer using the formula and nancial 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 $ 150 The footnotes stated that the company had $25 million in annual capital lease obligations for the next 20 years. a. Discount these annual lease obligations back to the present at a 7 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 -m 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 S 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 Appendix D Present value of an annuity of $1, PV FA Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 0.971 0.962 0.943 0.893 1.913 1.859 1.808 1.759 2.941 2.884 2.829 2.775 2.673 2.624 2.577 2.531 2.444 2.402 3.808 3.630 3.465 3.312 3.170 3.037 4.212 4.100 3.696 5.601 5.076 4.767 4.231 6.472 6.002 5.582 5.206 4.868 7.325 6.733 6.210 4.968 6.515 9.47 8.983 8.111 7.360 6.710 6.145 10.368 9.787 7.887 7.139 5.938 11.255 10.575 9.385 7.536 12.134 9.394 6.750 13.004 12.106 11.296 10.563 9.295 8.745 8.244 7.367 13.865 12.849 11.938 11.118 10.380 9.712 8.559 7.606 6.811 12.561 8.313 14.292 13.166 12.166 10.477 9.122 7.549 14.992 13.754 12.659 11.690 10.828 9.372 7.250 17.226 15.678 13.134 11.158 7.366 7.963 20 25 22.023 19.523 17.413 15.622 14.094 10.675 7.843 10.274 8.055 30 22.396 19.600 15.372 13.765 12.409 23.115 19.793 17.159 15.046 13.332 11.925 10.757 9.779 39.196 31.424 25.730 21.482 9.042 B.304 Appendix D (concluded) Percent 13% 15% 16% 17% 18% 20% 25% 30% 35% 40% 1.647 1.547 1.111 2.246 2.210 2.140 2.106 1.952 1.997 1.605 3.517 3.352 3.998 3.889 3.685 3.589 3.498 3.410 3.326 2.643 2.385 4.423 3.706 2.508 4.639 4.344 4.207 4.078 3.954 3.329 4.607 4.303 4.031 3.019 1.948 5.216 4.659 4.494 3.571 3.092 5.687 4.327 3.656 1.97 4.988 4.611 4.439 1.985 6.122 5.842 5.342 4.910 4.715 4.533 3.780 3.223 2.799 1.99 6.002 5.468 5.008 4.802 4.611 3.824 3.249 2.814 1.99 6.302 1.995 6.462 6.142 5.847 4.675 3.859 5.668 4.938 4.730 3.887 3.283 2.489 1.997 6.373 6.047 5.749 5.475 5.222 3.910 3.295 2.492 1.998 6.46 5.273 5.033 3.928 3.304 6.938 5.584 3.942 3.311 1.999 2.850 2.497 1.999 20. 7.025 6.623 5.929 5.353 4.870 3.954 3.316 2.856 2.499 25. 7.330 6.873 5.195 4.948 3.329 7.496 4.979 3.332 2.857 2.500 30 7.634 6.233 5.871 5.548 5.258 4.997 3.999 3.333 2.857 2.500 50 7.133 6.246 5.880 5.554 5.262 4.999 4.000 3.333 2.857 2.500