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Q5: Derra Foods is a specialty food retailer. In its balance sheet, the firm reports $1 billion in book value of equity and no debt,
Q5: Derra Foods is a specialty food retailer. In its balance sheet, the firm reports $1 billion in book value of equity and no debt, but it has operating leases on all its stores. In the most recent year, the firm made $85 million in operating lease payments for the next five years, and beyond are summarized below: Year 1 2 3 Operating Lease Expense $ 100 million $95 million $85 million $80 million $ 80 million $ 75 million 4 5 6-10 a- If the firm's current cost of borrowing is 7%, estimate the debt value of operating lease. b- Estimate the book value debt to equity ratio
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