8. [Effect of lease capitalization on ratios] Exhibit 11P-1 pre- sents selected 1999 financial data provided by The Limited [LTD]. (Note. Use 6% as the appropriate interest rate for pre- sent-value calculations.)

a. In its 10-K filing, The Limited provides an adjusted "carnings to fixed charge coverage" ratio. (i) Calculate the ratio without the adjustment. (ii) Explain why the adjusted ratio is a better measure of the company's interest coverage.

10. Lease capitalization effects; non-US. GAAP] BASF [BAS] is a chemicals company based in Germany. Its 1999 annual re- port (German GAAP) shows the following lease commitments (in Emillions): Due within 1 Year 2-5 years -5 years Total Payments 166.5 275.2 212.2 6538

a. Compute the present value of the BASF lease commitments, using an interest rate of 7% and the assumption that the years 2 through 5 payments occur evenly over the four years The 12/31/99 BASF balance sheet reports (in millions): Total debt Stockholders' equity 1.294 14.145

b. Compute the debt-to-equity ratio for BASH (i) Using reported data (ii) After capitalization of the lease commitment in part a

c. Your answers to parts a and b were based on the assumption of even payments in years 2-5. State another assumption that might be appropriate and explain how that assumption would affect the adjustment for operating leases.