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?

Question

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?

Quizplus · Accepted Answer

The Answer of 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?

NOTE: This Problem Requires Present Value Information