The Ellis Corporation has heavy lease commitments. A new vice-president wants the lease obligations footnoted in the balance sheet as follows: Use Appendix D.

ELLIS CORPORATION
($ millions)
Current assets	$50	Current liabilities	$10
Capital assets	50	Long-term liabilities	30
		Total liabilities	40
		Sharesholders' equity	60
Total assets	$100	Total liabilities and equity	$100

The footnotes would state that the company had $10 million in annual capital lease obligations over the next 20 years. Lease payments are payable at the end of the year.

a. Discount these annual lease obligations back to the present at a 6 percent discount rate. (Enter the answer in millions. Round "PV Factor" to 3 decimal places. Round the final answer to nearest whole million.)

Annual lease obligations $ million

b. Construct a revised balance sheet that includes lease obligations, as in Table 166. (Enter the answers in millions. Round "PV Factor" to 3 decimal places. Round the final answers to nearest whole million.)

Balance Sheet ($ millions)
Current assets	$	Current liabilities	$
Capital assets		Long-term liabilities
Leased property under capital lease		Obligations under capital lease
		Total liabilities
		Shareholders equity
Total assets	$	Total liabilities and shareholders' equity	$

c. Compute total debt to total assets on the original and revised balance sheets. (Round "PV Factor" to 3 decimal places. Round the final answers to 1 decimal place.)

Original	%
Revised	%

d. Compute total debt to equity on the original and revised balance sheets. (Round "PV Factor" to 3 decimal places. Round the final answers to 1 decimal place.)

Original	%
Revised	%

e. In an efficient capital market environment, should the consequences of the CICA recommendation, as viewed in the answers to parts c and d, change stock prices and credit ratings?

multiple choice

Yes

No