Question

Exercise 9-4A Understand the effect of leases on financial ratios (L09-3, 9-8) Coney Island enters into a lease agreement for a new ride. The lease payments have a present value of $2.8 million. Prior to this agreement, the company's total assets are $274 million and its total liabilities are $15.8 million boints Required: 1. Calculate total stockholders' equity prior to the lease agreement. (Enter your answer in millions not in dollars (ie, $5,000,000 should be entered as 5). Round your answer to 2 decimal places.) eBook Stockholders' equilty $ 1160 milion References 2. & 3. Calculate the debt to equity ratio, prior to the lease being signed and immediately after the lease being signed. (Round your answers to 2 decimal places.) Before Lease Alter Lease Debt to equity ratio 4. Does the direction of the change in the debt to equity ratio typically indicate that the company has higher leverage risk? • Yes No

Answer 1

Answer is given below

Total stockholders' Equity $11.60 $27.40 Total Assets Total Liabilities Stockholders Equity $15.80 $11.60 Before Lease 1.36 | After Lease 1.60 2 & 3 Debt Equity ratio Before Lease Total Liabilities Total Equity $15.80 $11.60 1.36 After Lease Total Liabilities* Total Equity $18.60 1.60 $11.60 * includes lease liability of $2.8 Mn Answer is Yes Change in Debt Equity ratio indicates the company has higher leverage risk