NOTE: This Problem Requires Present Value Information

question 58

Essay

NOTE: This problem requires present value information.
Charter Corp.manufactures office equipment and supplies throughout the U.S.The company owns property,plant,and equipment and also enters into operating leases for certain facilities.The company's tax rate is 35%.Listed below is selected financial data for Charter and the company's operating lease disclosure.


As an analyst you wish to restate Charter's operating leases into capital leases.
Required:a.Using the information in the operating lease disclosure,and assuming that Charter has an incremental borrowing rate for secured debt of 8%,restate the operating leases into capital leases.
b.Estimate the average life of the operating leases.
c.Calculate Charter's fixed asset turnover ratio as reported.
d.Would Charter's fixed asset turnover ratio increase or decrease,assuming that the operating leases were capitalized?

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Definitions:

Proposal

A formal suggestion or plan, often in writing, presented for consideration or discussion by others.

Services

Actions performed to meet the needs or desires of others, often in exchange for payment.

Proposals

Documents or presentations that offer a solution, service, or project plan for consideration or acceptance by others.

Competition

The rivalry between entities to achieve superiority in a specific area or to attain a particular goal.