The following is an excerpt from the Union Pacific 2016 annual report:
The following tables identify material obligations and commitments as of December 31, 2016:

Required:
a. Calculate the present value of operating lease payments using a discount rate of 7% and rounding the remaining lease term to the nearest whole year.
b. Union Pacific reported net operating assets (NOA) of $35,726 million in 2016. If the operating leases were capitalized, what would net operating assets have been?
c. Assume that the leased equipment has a useful life of 11 years, no salvage value, and straight-line depreciation is used. Estimate the effect on net operating profit before tax of capitalizing these leases. Assume that rental expense in 2016 is the same as 2017 lease payments.
d. Union Pacific reported net operating profit after tax (NOPAT) of $4,746 million and net operating assets (NOA) of $35,726 million for 2016. Calculate RNOA for 2016. Recalculate RNOA under the assumption that the company capitalized its operating leases. Use the effect calculated in c. above (ignore taxes). Is the difference significant? (Hint: for the purpose of part d., use NOA versus average NOA in your computations.)

Question

The following is an excerpt from the Union Pacific 2016 annual report:
The following tables identify material obligations and commitments as of December 31, 2016:
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Required: 
a. Calculate the present value of operating lease payments using a discount rate of 7% and rounding the remaining lease term to the nearest whole year.
b. Union Pacific reported net operating assets (NOA) of $35,726 million in 2016. If the operating leases were capitalized, what would net operating assets have been?
c. Assume that the leased equipment has a useful life of 11 years, no salvage value, and straight-line depreciation is used. Estimate the effect on net operating profit before tax of capitalizing these leases. Assume that rental expense in 2016 is the same as 2017 lease payments.
d. Union Pacific reported net operating profit after tax (NOPAT) of $4,746 million and net operating assets (NOA) of $35,726 million for 2016. Calculate RNOA for 2016. Recalculate RNOA under the assumption that the company capitalized its operating leases. Use the effect calculated in c. above (ignore taxes). Is the difference significant? (Hint: for the purpose of part d., use NOA versus average NOA in your computations.)

Quizplus · Accepted Answer

The Answer of The following is an excerpt from the Union Pacific 2016 annual report:
The following tables identify material obligations and commitments as of December 31, 2016:
﻿
﻿
  ﻿
Required: 
a. Calculate the present value of operating lease payments using a discount rate of 7% and rounding the remaining lease term to the nearest whole year.
b. Union Pacific reported net operating assets (NOA) of $35,726 million in 2016. If the operating leases were capitalized, what would net operating assets have been?
c. Assume that the leased equipment has a useful life of 11 years, no salvage value, and straight-line depreciation is used. Estimate the effect on net operating profit before tax of capitalizing these leases. Assume that rental expense in 2016 is the same as 2017 lease payments.
d. Union Pacific reported net operating profit after tax (NOPAT) of $4,746 million and net operating assets (NOA) of $35,726 million for 2016. Calculate RNOA for 2016. Recalculate RNOA under the assumption that the company capitalized its operating leases. Use the effect calculated in c. above (ignore taxes). Is the difference significant? (Hint: for the purpose of part d., use NOA versus average NOA in your computations.)

The Following Is an Excerpt from the Union Pacific 2016