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 five years and beyond are:

If the firm's current cost of borrowing is 7%, estimate the debt value of operating leases. Estimate the book value debt-to-equity ratio.

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Year Operating Lease Expense 1 $90 million 2 $90 million 3 $85 million 4 $80 million 5 $80 million 6-10 $75 million annually