A store has 5 years remaining on its lease in a mall. Rent is $2,000 per...

60.1K

Verified Solution

Question

Finance

A store has 5 years remaining on its lease in a mall. Rent is$2,000 per month, 60 payments remain, and the next payment is duein 1 month. The mall's owner plans to sell the property in a yearand wants rent at that time to be high so that the property willappear more valuable. Therefore, the store has been offered a"great deal" (owner's words) on a new 5-year lease. The new leasecalls for no rent for 9 months, then payments of $2,750 per monthfor the next 51 months. The lease cannot be broken, and the store'sWACC is 12% (or 1% per month).
Should the new lease be accepted? (Hint: Be sure to use1% per month
(Yes or no)

If the store owner decided to bargain with the mall's ownerover the new lease payment, what new lease payment would make thestore owner indifferent between the new and old leases?(Hint: Find FV of the old lease's original cost at t = 9;then treat this as the PV of a 51-period annuity whose paymentsrepresent the rent during months 10 to 60.) Round your answer tothe nearest cent. Do not round your intermediatecalculations.

$

The store owner is not sure of the 12% WACC—it could be higheror lower. At what nominal WACC would the store owner be indifferentbetween the two leases? (Hint: Calculate the differencesbetween the two payment streams; then find its IRR.) Round youranswer to two decimal places. Do not round your intermediatecalculations.

%

Answer & Explanation Solved by verified expert

4.2 Ratings (569 Votes)

See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

A store has 5 years remaining on its lease in a mall. Rent is$2,000 per month, 60 payments remain, and the next payment is duein 1 month. The mall's owner plans to sell the property in a yearand wants rent at that time to be high so that the property willappear more valuable. Therefore, the store has been offered a"great deal" (owner's words) on a new 5-year lease. The new leasecalls for no rent for 9 months, then payments of $2,750 per monthfor the next 51 months. The lease cannot be broken, and the store'sWACC is 12% (or 1% per month).Should the new lease be accepted? (Hint: Be sure to use1% per month(Yes or no)If the store owner decided to bargain with the mall's ownerover the new lease payment, what new lease payment would make thestore owner indifferent between the new and old leases?(Hint: Find FV of the old lease's original cost at t = 9;then treat this as the PV of a 51-period annuity whose paymentsrepresent the rent during months 10 to 60.) Round your answer tothe nearest cent. Do not round your intermediatecalculations.____ $The store owner is not sure of the 12% WACC—it could be higheror lower. At what nominal WACC would the store owner be indifferentbetween the two leases? (Hint: Calculate the differencesbetween the two payment streams; then find its IRR.) Round youranswer to two decimal places. Do not round your intermediatecalculations.____%