FNCE 5880
1 Gelson’s Markets has listed operating leases on its financial statements.      
2 They have listed the value of operating leases for 2012 – through 2016 by each year and in total thereafter.
3 There are no capital leases on its books at the present time.        
4 Use the operating lease figures for 2016 as the annual lease amounts for the future periods.    
5 Use 5.6% as the cost of capital to discount the lease payments.        
6 Use straight line depreciation to depreciate the leased assets over its life      
7 You are required to convert these operating leases into capital leases by year and analyze its effect
  on Gelson’s financial statements and key ratios for 2012.        
8 Restate the income statement & balance sheet for 2012 after converting the operating leases to capital leases
  Year       Operating Leases        
          (in millions of dollars)      
  2012       $275          
  2013       237          
  2014       425          
  2015       279          
  2016       325          
  Thereafter     2178          
  INCOME STATEMENT: ($ in millions)            
          Before After        
  Sales       $20,000          
  Operating Expenses     17500          
  Income before interest & taxes 2500          
  Intest expense     0          
  Income taxes     698          
  Net Icome     $1,802          
  BALANCE SHEET:                
          Before After     Before After
  Current Assets     $6,000   Current Liabilities $3,750  
  Fixed Assets     3100   Long Term Liabilities 700  
              Stockholders Equity 4650  
  Total Assets     $9,100   Total Liab + Equity $9,100