When a firm uses operating leases,an analyst should determine the firm's equity value by subtracting traditional debt and the value of operating leases from enterprise value.

Question

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When a firm uses operating leases, the lease payments are not recorded as traditional debt on the balance sheet. Therefore, to determine the firm's equity value, an analyst needs to subtract both traditional debt and the value of operating leases from enterprise value. This is known as the adjusted enterprise value approach.

When a Firm Uses Operating Leases,an Analyst Should Determine the Firm's