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 $ 30

Fixed assets 85 Long-term liabilities 50

Total liabilities $ 80

Stockholders' equity 90

Total assets $ 170 Total liabilities and stockholders' equity $ 170

The footnotes stated that the company had $27 million in annual capital lease obligations for the next 10 years.

a. Discount these annual lease obligations back to the present at a 9 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 answer in millions of dollars (e.g., $6,100,000 should be input as "6").)

Balance Sheet (in $ millions)

Current assets $70 Current liabilities

Fixed assets 70 Long-term liabilities

Leased property under capital lease 109 Obligations under capital lease

Total liabilities $0

Stockholders' equity

Total assets $249 Total liabilities and Stockholders' equity $0

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.)

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.)

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