As of December 31, the company has total assets of $10,000 and total liabilities of $4,000. Future

Question:

As of December 31, the company has total assets of $10,000 and total liabilities of $4,000. Future minimum payments on operating leases for which the company is the lessee are $600 per year for the next 15 years. Assume that the lease payments occur at the end of the year. The appropriate is 8%. Calculate
(1) The company’s debt-to-equity ratio using its reported numbers and
(2) The company’s debt-to-equity ratio assuming that the operating leases were accounted for as capital leases.

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...