FedEx Corp. reports total assets of $24,902 and total liabilities of $11,091 for 2013 ($ millions). Its

10-K report has the following footnote related to leasing activities.

A summary of future minimmum lease payments under noncancelable operating leases with an initial or

remaining term in excess of one year at May 31, 2013, is a follows (in millions).

Operating Lease

	Aircraft and Related Equipment	Facilities and Other	Total Operating Leases
2014	$462	$1474	$1936
2015	$448	$1386	$1834
2016	$453	$1183	$1636
2017	$391	$1298	$1689
2018	$326	$ 904	$1230
Thereafter	$824	$5826	$6650
Total	$2904	$12071	$14975

Property and equipment recorded under capital leases and future minimum lease payments

under capital leases were immaterial at May 31, 2013. Capital lease obligations were reported

as part of FedExs long-term debt to be $11 million at May 31, 2013.

a. What is the balance of lease assets and lease liabilities reported on FedExs balance sheet?

Explain.

b. Assume FedEx uses a rate of 4.8% to discount its capital leases. Use this discount rate and

round the remaining lease life to two decimals to estimate the amount of assets and liabilities

that FedEx fails to report as a result of its off-balance-sheet lease nancing.

c. What adjustments would we make to FedExs income statement corresponding to the

adjustments we make to its balance sheet in part b?

d. Indicate the direction (increase or decrease) of the effect that capitalizing the operating leases

would have on the following nancial items and ratios for FedEx: return on equity (ROE), net

operating prot after tax (NOPAT), net operating assets (NOA), net operating prot margin

(NOPM), net operating asset turnover (NOAT), and measures of nancial leverage.

e. What portion of total lease liabilities did FedEx report on-balance-sheet and what portion is off-

balance-sheet?

f. Based on your analysis, do you believe that FedExs balance sheet adequately reports its aircraft

and facilities assets and related obligations? Explain.