It is common practice for retail outlets to lease their store locations and distribution centers. Walmart is no exception. Note 11 to Walmarts consolidated financial statements for the fiscal year ending January 31, 2016 (found online at the text website or available for download in the investor relations section of Walmarts website), provides information on future operating lease commitments. REQUIRED a. 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. b. Recompute the long-term debt to long-term capital ratio (see Chapter 5) using your capi- talized operating leases. Comment on the results.

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 le leases are as follows Amounts in millions Fiscal Year Operating Leases Capital Lease and Financial Obligations 2017 2018 2019 2020 2021 Thereafter Total minimum rentals$21,505 Less estimated executory costs 2,057 1,989 1,794 1,697 1,530 12,438 $ 815 758 710 655 624 5,093 $8,655 39 Net minimum lease payments Noncash gain on future termination 8,616 of financing obligation Less imputed interest Present value of minimum lease payments 1,070 (3,319) 6,367 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 le leases are as follows Amounts in millions Fiscal Year Operating Leases Capital Lease and Financial Obligations 2017 2018 2019 2020 2021 Thereafter Total minimum rentals$21,505 Less estimated executory costs 2,057 1,989 1,794 1,697 1,530 12,438 $ 815 758 710 655 624 5,093 $8,655 39 Net minimum lease payments Noncash gain on future termination 8,616 of financing obligation Less imputed interest Present value of minimum lease payments 1,070 (3,319) 6,367