Stereo City is a retailer of stereos and televisions. The firm has operating income of $$150$ million, after operating lease expenses of $$50$ million. The firm has op$-$ erating lease commitments for the next five years and beyond:

year operating Lease Commitment

$155$

$260$

$360$

$455$

$550$

Years $6-1540$ each year

The book value of equity is $$1$ billion, and the firm has no debt outstanding. The firm has a cost of equity of $11\%$ and a pretax cost of borrowing of $6\%.$ The tax rate is $40\%.$

a$.$ Estimate the capital invested in the firm, before and after adjusting for oper$-$ ating leases. after adjusting for operating leases.

b$.$ Estimate the return on capital, before and

c$.$ Estimate the economic value added, before and after adjusting for operating leases. $($The market value of equity is $$2$ billion