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Cool City is a retailer of stereos and televisions. The firm has an operating income of $150 million, after operating lease expenses of $50 million.
Cool City is a retailer of stereos and televisions. The firm has an operating income of $150 million, after operating lease expenses of $50 million. The firm has operating lease commitments for the next 5 years as follows.
Year Operating lease commitment
1 55
2 60
3 60
4 55
5 50
The book value of equity is $1 billion and the firm has no debt outstanding. The appropriate interest rate is 10%.
a) Estimate the capital invested in the firm, before and after adjusting for operating leases.
b) Estimate EBIT, before and after adjusting for operating leases.
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