看不懂答案的讲解

Q. A retail company that leases the majority of its space has

• total assets of $4,500 million,
• total long-term debt of $2,125 million, and
• an average interest rate on debt of 12%.

Note 8 to the 2013 financial statements contains the following information about the company’s future beginning of year lease commitments:

Note 8: Operating Leases 

After an adjustment for the off-balance-sheet financing, the ratio of debt to total assets for the company is closest to:

1. 65%.
2. 57%.
3. 55%.

Solution

C is correct. The present value of the operating leases should be added to both the total debt and the total assets.

The present value of an annuity payment of $200 million for five years at 12% = $807.5 million.

(N = 5; I = 12; PMT = 200; Mode = Begin)

Adjusted debt to total assets (in millions) = ($2,125 + $807.5)/($4,500 + $807.5) = 55.3%.