Cavalier Copper Mines has $840 million in total liabilities and $520 million in shareholders’ equity. It discloses operating lease commitments over the next fi ve years witha present value of $100 million. If the lease commitments are treated as debt, thedebt-to-total-capital ratio is closest to:A . 0.58.B . 0.62.C . 0.64.

Cavalier Copper Mines has $840 million in total liabilities and $520 million in shareholders’ equity. It discloses operating lease commitments over the next fi ve years witha present value of $100 million. If the lease commitments are treated as debt, thedebt-to-total-capital ratio is closest to:A . 0.58.B . 0.62.C . 0.64.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter19: Lease Financing

Section: Chapter Questions

Problem 3P

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On January 1, 20x6, D Corp entered into a 10-year lease with W Inc. for industrial equipment. Annual lease payments of P10,000 are payable at the end of each year. D knows that the lessor expects a 10% return on the lease. D has a 12% incremental borrowing rate. The equipment is expected to have an estimated useful life of 10 years. In addition, a third party, unrelated to D, has guaranteed to pay W a residual value of P5,000 at the end of the lease. In D’s January 1, 20x6 balance sheet, the principal amount of the lease obligation was P63,374 P61,446 P58,112 P56,502 show properly labeled solution.
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