Walmart sometimes leases their store locations and distribution centers. This type of leasing is common practice for retail outlets. Note 11 to Walmarts consolidated financial statements for the fiscal year ending January 31, 2016 (available for download in the investor relations section of Walmarts website), provides information on future operating lease commitments.

Required

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.
2. Recompute the long-term debt to long-term capital ratio using your capitalized operating leases. Comment on the results.