Analyzing and Interpreting Footnote on Operating and Capital Leases Verizon Communications, Inc., provides the following footnote relating to its leasing activities in its 10-K report. The aggregate minimum rental commitments under noncancelable leases for the periods shown at December 31, 2010, are as follows:

Years (dollars in millions)	Capital Leases	Operating Leases
2011	$ 97	$ 1,898
2012	74	1,720
2013	70	1,471
2014	54	1,255
2015	42	1,012
Thereafter	81	5,277
Total minimum rental commitments	418	$ 12,633
Less interest and executory costs	(86)
Present value of minimum lease payments	332
Less current installments	(75)
Long-term obligation at December 31, 2010	$ 257

(a) Confirm that Verizon capitalized its capital leases using a rate of 7.4 %.

N	Amount	IRR
0	Answer	Answer
1	Answer
2	Answer
3	Answer
4	Answer
5	Answer
6	Answer
7	Answer

(b) What effect does the failure to capitalize operating leases have on Verizon's balance sheet? Over the life of its leases, what effect does this lease classification have on net income?

Total assets and total liabilities are lower than if the operating lease had been classified as a capital lease. Over the lease term, total rent expense under operating leases will be greater than the interest and depreciation expense that the company would record under capital leases.

Total assets and total liabilities are lower than if the operating lease had been classified as a capital lease. Over the lease term, total rent expense under operating leases will be equal to the interest and depreciation expense that the company would record under capital leases.

Total assets and total liabilities are higher than if the operating lease had been classified as a capital lease. Over the lease term, total rent expense under operating leases will be equal to the interest and depreciation expense that the company would record under capital leases.

There is no effect on the balance sheet and income statement as a result of the classification of leases.

(c) Compute the present value of Verizon's operating leases, assuming an 7.4% discount rate and rounding the remaining lease term to 3 decimal places. (Use a financial calculator or Excel to compute. Do not round until your final answers. Round each answer to the nearest whole number.)

($ millions)	Present Value
Year 1	Answer
Year 2	Answer
Year 3	Answer
Year 4	Answer
Year 5	Answer
After 5	Answer
Total*	Answer

* (Use subsequent rounded answers for calculation.)

Answer all parts that say answer please.