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Derra Foods is a specialty food retailer


Derra Foods is a specialty food retailer. In its balance sheet, the firm reports $1 billion in book value of equity and no debt, but it has operating leases on all its stores. In the most recent year, the firm made $85 million in operating lease payments and its commitments to make lease payments for the next 5 years and beyond are summarized.

Year     Operating Lease Expense   

1   $ 90 million   

2   $ 90 million   

3   $ 85 million   

4   $ 80 million   

5   $ 80 million   

6-10   $ 75 million

annually If the firm's current cost of borrowing is 7%, estimate the debt value of operating leases

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