a. What lease assets and lease liabilities does Ambercrobie report on its balance sheet? How do we know?
b. What effect does the lease classification have on A&F's balance sheet? Over the life of the lease, what effect does this classification have on the company's net income?
c. Using a 6% discount rate and rounding the remaining lease life to the nearest whole year, estimate the assets and liabilities that A&F fails to report as a result of its off balance sheet lease financing.
d. What adjustments would we consider to A&F's income statement corresponding to the adjustments we would make to its balance sheet in part c?
e. Indicate the direction (increase or decrease) of the effect that capitalizing thease leases would have on the following finacial items and ratios for A&F: return of equity (ROE), net operating profit after tax (NOPAT), net operating profit margin (NOPM), net operating assets (NOA), net operating asset turnover (NOAT), and measures of financial leverage.