Some retailing companies own their own stores or acquire their premises under capital leases. Other retailing companies acquire the use of store facilities under operating leases, contracting to make future payments. An analyst comparing the capital structure risks of retailing companies may want to adjust reported financial statement data to put all firms on a comparable basis. Certain data from the financial statements of Jarir Inc. and Extra Inc. follow (amounts in millions). Balance Sheet as of January 31, 2009 Jarir Inc. Extra Inc. Current Liabilities $2,158 $1,255 Long-term debt Other non-current liabilities 2,897 1,019 946 Sharcholders' equity 4,387 1,874 Total $7,564 $6,972 Minimum Payment under operating leases 2009 $1,069 $478 | 2010 927 455 2011 712 416 2012 520 373 | 2013 386 341 After 2013 $1,080 $1,334 Total $4,694 $3,397 Required: a) Compute the present value of operating lease obligations using an 8% discount rate for Jarir Inc. and Extra Inc. as of January 31, 2009. Assume that all cash flows occur at the end of cach year. Also assume that the minimum lease payment each year after 2013 equals $360 million per year for three years for Jarir Inc. and $333.5 million for four years for Extra Inc. (This payment scheduling assumption can be obtained by assuming that the payment amount for 2013 continues until the aggregate payments after 2013 have been made, rounding the number of years upward, and then assuming level payments for that number of years. For Jarir Inc.: $1,080/$386 = 2.8 years. Rounding up to three years creates a three-year annuity of S1,080/3 years = $360 million per year.)
Some retailing companies own their own stores or acquire their premises under capital leases. Other retailing companies acquire the use of store facilities under operating leases, contracting to make future payments. An analyst comparing the capital structure risks of retailing companies may want to adjust reported financial statement data to put all firms on a comparable basis. Certain data from the financial statements of Jarir Inc. and Extra Inc. follow (amounts in millions). Balance Sheet as of January 31, 2009 Jarir Inc. Extra Inc. Current Liabilities $2,158 $1,255 Long-term debt Other non-current liabilities 2,897 1,019 946 Sharcholders' equity 4,387 1,874 Total $7,564 $6,972 Minimum Payment under operating leases 2009 $1,069 $478 | 2010 927 455 2011 712 416 2012 520 373 | 2013 386 341 After 2013 $1,080 $1,334 Total $4,694 $3,397 Required: a) Compute the present value of operating lease obligations using an 8% discount rate for Jarir Inc. and Extra Inc. as of January 31, 2009. Assume that all cash flows occur at the end of cach year. Also assume that the minimum lease payment each year after 2013 equals $360 million per year for three years for Jarir Inc. and $333.5 million for four years for Extra Inc. (This payment scheduling assumption can be obtained by assuming that the payment amount for 2013 continues until the aggregate payments after 2013 have been made, rounding the number of years upward, and then assuming level payments for that number of years. For Jarir Inc.: $1,080/$386 = 2.8 years. Rounding up to three years creates a three-year annuity of S1,080/3 years = $360 million per year.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Question# 2
Some retailing companies own their own stores or acquire their premises under capital leases. Other
retailing companies acquire the use of store facilities under operating leases, contracting to make future
payments. An analyst comparing the capital structure risks of retailing companies may want to adjust
reported financial statement data to put all firms on a comparable basis. Certain data from the financial
statements of Jarir Inc. and Extra Inc. follow (amounts in millions).
Balance Sheet as of January 31, 2009
Jarir Inc.
Extra Inc.
Current Liabilities
$2,158
$1,255
Long-term debt
2,897
Other non-current liabilities
1,019
946
Sharcholders' equity
4,387
1,874
|Total
$7,564
$6,972
Minimum Payment under operating leases
2009
$1,069
$478
2010
927
455
2011
712
416
2012
520
373
2013
386
341
After 2013
$1,080
$1,334
Total
$4,694
$3,397
Required:
a) Compute the present value of operating lease obligations using an 8% discount rate for Jarir
Inc. and Extra Inc. as of January 31, 2009. Assume that all cash flows occur at the end of each
year. Also assume that the minimum lease payment each year after 2013 equals $360 million
per year for three years for Jarir Inc. and $333.5 million for four years for Extra Inc. (This
payment scheduling assumption can be obtained by assuming that the payment amount for
2013 continues until the aggregate payments after 2013 have been made, rounding the number
of years upward, and then assuming level payments for that number of years. For Jarir Inc.:
$1,080/$386 = 2.8 years. Rounding up to three years creates a three-year annuity of $1,080/3
years = $360 million per year.)
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