The B companys December 31, 2012, balance sheet and income statement are presented in the following schedule, along with its interest coverage ratio:

(I was not provided with the balance sheet and income statement)

Debt $12 million

Equity 20

Interest expense 1

Time interest earned 5.0X

B. companys financial statement footnotes include the following:

(i) At the beginning of 2012, B. companys entered into an operating lease with future payments of $40 million ($5 million /year) with a discounted present value of $20 million.

(ii) B. companys has guaranteed a $5 million, 10% bond issue, due in 2014, issued by Cs, a nonconsolidated 30%-owned affiliated.

(iii) B. companys has committed itself (starting in 2009)to purchase a total of $12 million of phosphorus from PE, inc.., its major supplier, over the next 5 years. The estimated present value of these payments is $7 million.(Assume the effective rate =18%)

a. Adjust Bs debt and equity and recomputed the debt-to-equity ratio, using the information in footnotes from (i)to (iii).

b. Adjust the time-interest-earned ratio for 2012 for these commitments.

c. Discuss the reasons (both financial and operating) why Bs may have entered into these arrangements.

d. Describe the additional information required to fully evaluate the impact of these commitments on Bs current financial condition and future operating trends.