It is common practice for retail outlets to lease their store locations and distribution centers. Walmart is
Question:
It is common practice for retail outlets to lease their store locations and distribution centers. Walmart is no exception. Note 11 to Walmart’s consolidated financial statements for the fiscal year ending January 31, 2016 (found online at the text website or available for download in the investor relations section of Walmart’s website), provides information on future operating lease commitments.
REQUIRED
a. Effectively capitalize the operating lease obligations. You must first choose and justify an interest rate. Assume that all cash flows occur at the end of each year.
b. Recompute the long-term debt to long-term capital ratio (see Chapter 5) using your capi- talized operating leases. Comment on the results.
Fundamentals of Investments
ISBN: 978-0132926171
3rd edition
Authors: Gordon J. Alexander, William F. Sharpe, Jeffery V. Bailey