Estimate the debt value of operating leases

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Derra Foods is a specialty food retailer. In its balance sheet, the firm reports $1 billion in book value of equity and no debt, but it has operating leases on all its stores. In the most recent year, the firm made $85 million in operating lease payments and its commitments to make lease payments for the next 5 years and beyond are summarized.

Year Operating Lease Expense

1 $ 90 million
2 $ 90 million
3 $ 85 million
4 $ 80 million
5 $ 80 million
6-10 $ 75 million
annually

Problem 1: If the firm's current cost of borrowing is 7%, estimate the debt value of operating leases

Reference no: EM132674759

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