The Ellis Corporation has heavy lease commitments. Prior to SFAS No. 13, it merely footnoted lease obligations
Question:
The footnotes stated that the company had $14 million in annual capital lease obligations for the next 20 years.
a. Discount these annual lease obligations back to the present at a 10 percent discount rate (round to the nearest million dollars).
b. Construct a revised balance sheet that includes lease obligations, as in Table 16-8.
c. Compute total debt to total assets on the original and revised balance sheets.
d. Compute total debt to equity on the original and revised balance sheets.
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?
f. Comment on management€™s perception of market efficiency (the viewpoint of the financialofficer).
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Foundations of Financial Management
ISBN: 978-1259194078
15th edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen