Question
American Eagle Outfitters includes the following in its fiscal 2013 annual report (in thousands): Please demonstrate process using a Ba II Plus Texas Instrument Financial
| American Eagle Outfitters includes the following in its fiscal 2013 annual report (in thousands): Please demonstrate process using a Ba II Plus Texas Instrument Financial Calculator, meaning inputs in the calculator |
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| Fiscal Years: | Future Minimum Lease Payments |
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| 2014 | $273,827 |
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| 2015 | 261,828 |
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| 2016 | 233,810 |
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| 2017 | 206,934 |
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| 2018 | 177,229 |
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| Thereafter | 601,934 |
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| Total | $1,755,562 |
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| a. | Calculate the present value of operating lease payments using a discount rate of 6%. |
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| b. | Assume that the leased equipment has a useful life of 9 years, no salvage value, and straight-line depreciation is used. Estimate the effect on net operating profit before tax of capitalizing these leases. Assume that rental expense in 2013 is the same as 2014 lease payments. |
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| c. | How would ROE and the other financial ratios from the ROE decomposition be affected if the company capitalized these operating leases? |
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