The following information comes from the 2011 financial statements of Jessica Hatch Company:

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $250,000

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,000

In addition, Jessica Hatch has a large number of operating leases. The future payments on these operating leases are disclosed in the notes to the financial statements as follows:

Year Payment

2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,000

2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000

2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000

2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000

2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000

Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330,000

All of these lease payments occur at the end of the year. The incremental borrowing rate of Jessica Hatch Company is 10%. This is also the implicit rate in all of the leases that Jessica Hatch signs.

1. Compute the debt-to-equity ratio (total liabilities/total equity).

2. Compute the debt ratio (total liabilities/total assets).

3. Assuming that Jessica Hatch’s operating leases are accounted for as capital leases, compute the debt-to-equity ratio.

4. Assuming that Jessica Hatch’s operating leases are accounted for as capital leases, compute the debt ratio.