Question

NPV AND IRR A store has 5 years remaining on its lease in a mall. Rent is $2,100 per month, 60 payments remain, and the next payment is due in 1 month. The mall's owner plans to sell the property in a year and wants rent at that time to be high so that the property will appear more valuable. Therefore, the store has been offered a "great deal" (owner's words) on a new 5-year lease. The new lease calls for no rent for 9 months, then payments of $2,600 per month for the next 51 months. The lease cannot be broken, and the store's WACC is 12% (or 1% per month). a. Should the new lease be accepted? (Hint: Be sure to use 1% per month.) b. If the store owner decided to bargain with the mall's owner over the new lease payment, what new lease payment would make the store owner indifferent between the new and old leases? (Hint: Find FV of the old lease's original cost att9; then treat this as the PV of a 51-period annuity whose payments represent the rent during months 10 to 60.) Round your answer to the nearest cent. Do not round your intermediate calculations c. The store owner is not sure of the 12% WACC-It could be higher or lower. At what nominal WACC would the store owner be indifferent between the two leases? (Hint: Calculate the differences between the two payment streams; then find its IRR.) Round your answer to two decimal places. Do not round your intermediate calculations.

Answer 1

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PV, FV, ANNUITY (Autosaved) - Microsoft Excel (Product Activation Failed) Review View Add-Ins File Home Insert Page Layout Formulas Data - 2x % Cut -11AA = = = Dr Wrap Text General D A E Merge & Center - $ % & ... Cell Styles Insert Delete Format Conditional Format Formatting as Table Styles Calibri E Copy Paste Format Painter BIU Clipboard CX106 СТ CU Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select Alignment Number Cells Font fx Formula Bar CW CX CY 106 SUM 2100 107 108 109 110 111 112 present value of 60 payments rent periods rate present value of 60 payments 60 12% $ 94,405.58 excel =PV(1%,60,-2100) 113 114 115 116 117 118 future value of these payments at t =9 future value $ 1,03,249.99 excel =FV(1%,9,,-94405.58) periods 51 rate 12% rent per month $ 2,594.34 excel =PMT(1%,51,-103249.99) NO, IT SHOULD NOT BE ACCEPTED AS RENT SHOULD BE 2594.34 AND NOT 2500 119 120 OLD LEASE DIFFERENCE (NEW-OLD) 121 FIRST 9 MONTHS NEXT 51 MONTHS NEW LEASE 2100 2100 2600 -2100 500 122 123 124 125 126 W Rea IRR = NOMINAL WACC 1.0412% 12.49% [1.0412% X 12] LOAN OPTIONS pv, fv, annuity_CAP STRU VALUE profit margin_loan with points LOCK BOX DILUTION O CALCULATOR ferences DOLLAR COST AVG EXPONPER APR CPI ear FVA_PICI BOU 120% -_- c. DO 4 * 4 ENG 11:10 04-11-2019