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Chapter 5: Q21BP-a (page 531)

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:

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).

Short Answer

Expert verified

The present value of lease payments is $86,024,000.

Step by step solution

01

Information provided in question

Annual capital lease obligations = 14,000,000

Lease period = 20 years

Discount rate = 10%

02

Calculation of present value of the lease obligations

The present value of lease payments is $86,024,000.

PV of lease payments=Annual lease payments×PVFAi=10%,n=10years=$14,000,000×6.1446=$86,024,000

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Walton and Company is the managing investment banker for a major new underwriting. The price of the stock to the investment banker is \(23 per share. Other syndicate members may buy the stock for \)24.25. The price to the selected dealers group is \(24.80, with a price to brokers of \)25.20. Finally, the price to the public is $29.50.

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