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For the most recent financial year 2018, WOW reported operating lease expenses of $950 million,...

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Finance

For the most recent financial year 2018, WOW reported operating lease expenses of $950 million, operating income (EBIT) of $2,000 million, and interest-bearing debt of $4,000 million. The future operating lease commitments of the company are as follows: $1,200 million (in 2019); $900 million (in 2020); $800 million (in 2021); $700 million (in 2022); $600 million (in 2023), and a lump sum of commitments beyond that point in time of $4,000 million. The pre-tax cost of debt is 7.4%, the cost of capital is 13%, the firms beta is 1.38, and the effective tax rate is 30%.

1. What is the total present value in 2018 of all operating lease commitments? 2. What is the total debt of the company after reclassifying operating leases as debt?

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