Analyzing, Interpreting and Capitalizing Operating Leases (L01} FedEx reports total assets of $24,902 and total liabilities of $11,091 for 2010 ($ millions). Its 10-K report has the following footnote related to leasing activities. A summary of future minimum lease payments under capital leases and noncancelable operating leases with an initial or remaining term in excess of one year at May 31, 2010, is as follows (in millions): Operating Leases Aircraft and Related Facilities Operating Equipment and Other Leases Total Capital Leases 2011... $ 20 8 119 $1,250 1,085 926 $ 526 504 499 473 455 2,003 786 $ 1,776 1,589 1,425 1,259 1,172 6,550 2012 2013 2014 2015...... Thereafter.. Total ........... Less amount representing interest. ... Present value of net minimum lease payments........ 717 4,547 $4,460 $9,311 $13,771 Required a. What is the balance of lease assets and lease liabilities reported on FedEx's balance sheet? Explain. b. Confirm that the implicit rate that FedEx uses to discount its capital leases is 4.6%. Use this dis- count rate and round the remaining lease life to three decimals to estimate the amount of assets and liabilities that FedEx fails to report as a result of its off-balance-sheet lease financing. What adjustments would we make to FedEx's income statement corresponding to the adjust- ments we make to its balance sheet in part b? d. Indicate the direction (increase or decrease) of the effect that capitalizing the operating leases would have on the following financial items and ratios for FedEx: return on equity (ROE), net operating profit after tax (NOPAT), net operating assets (NOA), net operating profit margin (NOPM), net operating asset turnover (NOAT), and measures of financial leverage. What portion of total lease liabilities did FedEx report on-balance-sheet and what portion is off-balance-sheet? f. Based on your analysis, do you believe that FedEx's balance sheet adequately reports its aircraft and facilities assets and related obligations? Explain