It is common practice for retail outlets to lease their store locations and distribution centers. Walmart is no exception. Note 11 to Walmart's consolidated financial statements for the fiscal year ending January 31,2016:

The Company has long-term leases for stores and equipment. Rentals (including amounts applicable to taxes, insurance, maintenance, other operating expenses and contingent rentals) under operating leases and other short-term rental arrangements were $2.5 billion in fiscal 2016 and $2.8 billion in both fiscal 2015 and 2014. Aggregate minimum annual rentals at January 31, 2016, under non-cancelable leases are as follows: (Amounts in millions) Operating Capital Lease Fiscal Year Leases and Financial Obligations 2017 $ 2,057 $ 815 2018 1,989 758 2019 1,794 710 2020 1,697 655 2021 1,530 624 Thereafter 12,438 5,093 Total minimum rentals $21,505 $ 8,655 Less estimated executory costs 39 Net minimum lease payments 8,616 Noncash gain on future termination of financing obligation 1,070 Less imputed interest (3,319) Present value of minimum lease payments $ 6,367 Certain of the Companys leases provide for the payment of contingent rentals based on a percentage of sales. Such contingent rentals were not material for fiscal 2016, 2015 and 2014. Substantially all of the Companys store leases have renewal options, some of which may trigger an escalation in rentals.

The Company has future lease commitments for land and buildings for approximately 215 future locations. These lease commitments have lease terms ranging from 10 to 30 years and provide for certain minimum rentals. If executed, payments under operating leases would increase by $34 million for fiscal 2017, based on current cost estimates. In connection with certain long-term debt issuances, the Company could be liable for early termination payments if certain unlikely events were to occur. At January 31, 2016, the aggregate termination payment would have been $44 million. The arrangement pursuant to which this payment could be made will expire in fiscal 2019.

1. Effectively capitalize the operating lease obligations. You must first choose and justify an interest rate. Assume that all cash flows occur at the end of each year and assume 10 periods for the Thereafter period. You will need to indicate the Present value factor and the present value for each of the period(s) examined. One suggestion for the interest rate would be to divide the interest expense for the fiscal year ending January 31, 2016, by the average of the January 31, 2016, and January 31, 2015, interest-bearing debt. [Total 50 points: 40 points for capitalization and 10 points for justification of interest rates].

2. Re-compute the long-term debt to long-term capital ratio using your capitalized operating leases. [30 points: 10 points for calculation of long-term debt to long-term capital without the capitalized operating lease and 20 points for calculation of long-term debt to long-term capital with the capitalized operating lease]

3. Based on your results in (B) discuss what insights you have obtained regarding the financial position and risk of Walmart [20 points]