FedEx reports total assets of \(\$ 25,633\) and total liabilities of \(\$ 11,107\) for 2008 (\$ millions). Its \(10-\mathrm{K}\) FedEx (FDX) report has the following footnote related to its leasing activities.

Required

a. What is the balance of lease assets and lease liabilities as reported on FedEx's balance sheet? Explain.

b. Confirm that the implicit rate that FedEx uses to discount its capital leases is 5.07%. Use this discount rate to estimate the amount of assets and liabilities that FedEx fails to report as a result of its off-balance-sheet lease financing. C.

d. e. What adjustments would we make to FedEx's income statement corresponding to the adjustments we make to its balance sheet in part b? Indicate the direction (increase or decrease) of the effect that capitalizing the operating leases would have on the following financial items and ratios for FedEx: return on equity (ROE), net operating profit after tax (NOPAT), net operating assets (NOA), net operating profit margin (NOPM), net operating asset turnover (NOAT), and measures of financial leverage. What portion of total lease liabilities did FedEx report on-balance-sheet and what portion is off-balance-sheet?

f. Based on your analysis, do you believe that FedEx's balance sheet adequately reports its aircraft and facilities assets and related obligations? Explain.

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A summary of future minimum lease payments under capital leases and noncancelable operating leases with an initial or remaining term in excess of one year at May 31, 2008, is as follows (in millions): Operating Leases Aircraft and Total Capital Related Leases Equipment Facilities and Other Operating Leases 2009. $ 13 $ 555 $ 1,248 $ 1,803 2010. 97 544 1,103 1,647 2011 8 526 956 1,482 2012 8 504 828 1,332 2013... 119 499 709 1,208 Thereafter, 18 2.931 5,407 8,338 Total.... 263 $5,559 $10,251 $15,810 Less amount representing interest. 43 Present value of net minimum lease payments... $220