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In: Finance

FoodMarkets Inc. is a grocery chain. It reported a debt to capital ratio of 10%, and...

FoodMarkets Inc. is a grocery chain. It reported a debt to capital ratio of 10%, and a return on capital of 25%, on a book value of capital invested of $1 billion. Assume that the firm has significant operating leases. If the operating lease expense in the current year is $100 million and the present value of lease commitments is $750 million, estimate the FoodMarket's debt to capital and return on capital.

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Information provided in question
Debt to Capital Ratio 10%
Return On Capital Ratio 25%
Capital      1,00,00,00,000.00
Assumptions:-
It is assumed that aforesaid Ratio are given after lease expenses.
Required
Debt to Capital
Return On Capital
Formula of
Debt to Capital Ratio = Debt/Capital X100
Assume Debt is X
10% = x/1000000000*100
=          10,00,00,000.00
Formula of
Return On Capital = Profit/Capital X 100
Assume profit is Y
25% = Y/Capital X 100
=          25,00,00,000.00
Note:-
Operating leases do not increase capital base as ownership does not transfer in such leases.

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