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.