Question

Analyzing and Interpreting Footnote on Operating and Capital Leases Verizon Communications, Inc., provides the following footnote relating to its leasing activities in its 10-K report. The aggregate minimum rental commitments under noncancelable leases for the periods shown at December 31, 2015, are as follows: Years ($ millions) 2016 2017 2018 2019 2020 Thereafter Total minimum rental commitments Capital Leases Operating Leases $2,744 2,486 2,211 1,939 1,536 7,297 $18,213 $302 278 187 97 45 159 1,068 Less interest and executory costs Present value of minimum lease payments Less current installments 957 271 $686 Long-term obligation at December 31, 2015 (a) Using your financial calculator or Excel Spreadsheet, confirm that Verizon capitalized its capital leases using a rate of 3.85% Amount IRR 0 0 X 3.85 % 302 278 87 4 97 45 159 X 0 X (c) Compute the present value of Verizon's operating leases, assuming an 3.85% discount rate and rounding the remaining lease term to 3 decimal places. (Use a financial calculator or Excel to compute. Do not round until your final answers. Round each answer to the nearest whole number.) ($ millions) Present Value Year 1 Year 2 Year 3 Year 4 Year 5 0 X After 5 Total *(Use subsequent rounded answers for calculation.) ,242.5

Answer 1

Answer :

c) Compute the present value of Verizon's operating leases, assuming an 3.85% discount rate and rounding the remaining lease term to 3 decimal places.

Years	Operating leases	Present value @ 3.85%	Present value in ($)
2016	2,744	0.969	= $ 2744 * 0.969 = $ 2,658.936
2017	2,486	0.932	$ 2,316.952
2018	2,211	0.906	$ 2,003.166
2019	1,939	0.877	$ 1,700.503
2020	1,536	0.852	$ 1,308.672
Thereafter	7,297	0.824	$ 6,012.728
Present value of operating leases			$16,000.957

Present value of operating leases = $16,000.957

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