BAV Energy has provided electricity and gas to thousands of households and companies. Recently, the new CEO of BAV Energy, who began in the CEO position 3 months ago, announced that the company has a plan to borrow a loan from banks. A credit analyst is examining the companys financial statements of 2018 and finds the following information for its operating leases:

The company also reported the following information in its 2018 annual reports: Total debt $1,000 Total equity $2,000 Earnings before interest and tax (EBIT) $500 Lease payment $10 Interest expense $100 Required: 1. Assume the company has a cost of debt of 10%. Estimate the present value of the leased assets. (2 marks) 2. Make accounting adjustments to accounting numbers in the financial statement to convert the operating lease into capital lease. (4 marks) 3. Explain how the adjustments can affect the companys solvency ratio and financial risk.

2023 Year 2019 2020 2021 2022 Lease 16.11 11 12.1 13.31 14.64 ayments 2023 Year 2019 2020 2021 2022 Lease 16.11 11 12.1 13.31 14.64 ayments