In: Accounting
Analyzing, Interpreting and Capitalizing Operating Leases
YUM! Brands, Inc., reports the following footnote relating to its
capital and operating leases in its 2015 10-K report ($
millions).
Future minimum commitments under noncancelable leases are set forth
below. At December 26, 2015, the present value of minimum payments
under capital leases was $169 million.
Commitments ($ millions) | Capital | Operating |
---|---|---|
2016 | $20 | $672 |
2017 | 20 | 620 |
2018 | 20 | 569 |
2019 | 20 | 516 |
2020 | 19 | 457 |
Thereafter | 188 | 2,123 |
$287 | $4,957 |
(a) Confirm that the implicit rate on YUM!'s capital leases is
7.634%.
N | Amount | IRR |
---|---|---|
0 | Answer | Answer % |
1 | Answer | |
2 | Answer | |
3 | Answer | |
4 | Answer | |
5 | Answer | |
6 | Answer | |
7 | Answer | |
8 | Answer | |
9 | Answer | |
10 | Answer | |
11 | Answer | |
12 | Answer | |
13 | Answer | |
14 | Answer | |
15 | Answer |
Using a 7.634% discount rate and rounding the remaining lease life
to three decimal places, compute the present value of YUM!'s
operating leases. (Use a financial calculator or Excel to compute.
Do not round until your final answers. Round each answer to the
nearest whole number.)
($ millions) | Present Value |
---|---|
Year 1 | Answer |
Year 2 | Answer |
Year 3 | Answer |
Year 4 | Answer |
Year 5 | Answer |
After 5 | Answer |
Total* | Answer |
* (Use subsequent rounded answers for calculation.)
The present value of minimum lease payments under capital lease is $ 169.millions of the IRR is 7.634 % the present value of all the given 15 payments should be equal to $ 169
ie $ 20 millions from 2016 to 2019 (4 payments)
$ 19 millions in 2020 (1 payment)
and $ 188/ 10 years $ 18.8 millions each year after 2020