LOI E10-29. Analyzing and Interpreting Footnote on Operating and Capital Leases Verizon Communications Inc. provides the following footnote relating to leasing activities in its 10-K report. Verizon Communications Inc. women ( 2) MBC The aggregate minimum rental commitments under noncancelable leases for the periods shown at December 31, 2015, are as follows: Years ($ millions) Capital Leases Operating Leases 2016 $302 $ 2,744 2017 278 2,486 2018 187 2,211 2019 97 1,939 2020 451536 Thereafter .... Total minimum rental commitments ............ 1,068 $18,213 159 Less interest and executory costs............... Present value of minimum lease payments ...... 957 Less current installments.. 271 Long-term obligation at December 31, 2015....... $686 a.Confirm that Verizon capitalized its capital leases using a rate of 3.85%. b. What effect does the failure to capitalize operating leases have on Verizon's balance sheet? Over the life of its leases, what effect does this lease classification have on net income? c. Compute the present value of Verizon's operating leases, assuming a 3.85% discount rate and round- ing the remaining lease life to three decimal places. How might we use this additional information in our analysis of the company? LOI E10-29. Analyzing and Interpreting Footnote on Operating and Capital Leases Verizon Communications Inc. provides the following footnote relating to leasing activities in its 10-K report. Verizon Communications Inc. women ( 2) MBC The aggregate minimum rental commitments under noncancelable leases for the periods shown at December 31, 2015, are as follows: Years ($ millions) Capital Leases Operating Leases 2016 $302 $ 2,744 2017 278 2,486 2018 187 2,211 2019 97 1,939 2020 451536 Thereafter .... Total minimum rental commitments ............ 1,068 $18,213 159 Less interest and executory costs............... Present value of minimum lease payments ...... 957 Less current installments.. 271 Long-term obligation at December 31, 2015....... $686 a.Confirm that Verizon capitalized its capital leases using a rate of 3.85%. b. What effect does the failure to capitalize operating leases have on Verizon's balance sheet? Over the life of its leases, what effect does this lease classification have on net income? c. Compute the present value of Verizon's operating leases, assuming a 3.85% discount rate and round- ing the remaining lease life to three decimal places. How might we use this additional information in our analysis of the company