Chunky Cheese Pizza has $61.6 million in bonds payable. The bond indenture state
ID: 2556980 • Letter: C
Question
Chunky Cheese Pizza has $61.6 million in bonds payable. The bond indenture states that the debt to equity ratio cannot exceed 3.19. Chunky’s total assets are $201.6 million, and its liabilities other than the bonds payable are $91.6 million. The company is considering some additional financing through leasing.
Q: 17
Required:
1. Calculate total stockholders’ equity using the balance sheet equation. (Enter your answers in millions rounded to 1 decimal place. (i.e., $5,500,000 should be entered as 5.5).)
Stakeholders='s equity
1- ….............................
2- .........................
…............................
….............................
= ????
2. Calculate the debt to equity ratio. (Enter your answers in millions rounded to 1 decimal place. (i.e., $5,500,000 should be entered as 5.5). Round ratio answer to 2 decimal place.)
debt to equity ratio
1- ….............................
2- .........................
…............................
….............................
= ????
= ????
3. The company enters a lease agreement requiring lease payments with a present value of $6.6 million. Will this lease agreement affect the debt to equity ratio differently if the lease is recorded as an operating lease versus a capital lease?
Yes
or
No
4-a. Will entering into the lease cause the debt to equity ratio to be in violation of the contractual agreement in the bond indenture? (assuming an operating lease).
Yes
or
No
4-b. Will entering into the lease cause the debt to equity ratio to be in violation of the contractual agreement in the bond indenture? (assuming a capital lease).
Yes
or
No
Stakeholders='s equity
1- ….............................
2- .........................
…............................
….............................
Explanation / Answer
1. Total Shareholder's Equity= Total Assets - Liabilities other than bond payable - Bond Payable
=201.6-91.6-61.6
=$48.4
2. Debt Equity Ratio = Debt/Equity
=(91.6+61.6)/48.4
=3.16
3. No, as less than 3.19
4. a NO
4. b NO
1. Total Shareholder's Equity= Total Assets - Liabilities other than bond payable - Bond Payable
=201.6-91.6-61.6
=$48.4
2. Debt Equity Ratio = Debt/Equity
=(91.6+61.6)/48.4
=3.16
3. No, as less than 3.19
4. a NO
4. b NO