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EV/FCFF:EXAMPLES:1. Derra Foods is a specialty food retailer. In its balance sheet, the firm reports $1 billionin book value of equity and no debt, but it has operating leases on all its stores. In the mostrecent year, the firm made $85 million in operating lease payments and its commitments tomake lease payments for the next 5 years and beyond are:If the firm's current cost of borrowing is 7%, estimate the debt value of operating leases.Estimate the book value debt to equity ratioYearOperating Lease ExpPresent Value at 7%1$90 million842$90 million78.63$85 million69.384$80 million61.035$80 million57.046-10$75 million annually219Sum of Present Values569.43The debt value of operating leases is $569.4313 million. Including this amount in debt, thebook value debt to equity ratio becomes 569/1000 or 0.5694Assume that Derra Foods, in problem 1, reported earnings before interest and taxes(withoperating leases expensed) of $200 million. Estimate the adjusted operating income,assuming that operating leases are capitalized-
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