Estimate the debt value of operating leases

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Question - 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 If the firm's current cost of borrowing is 7%, estimate the debt value of operating leases?

Reference no: EM132713171

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